8-K: Altria Reaffirms Full-Year Earnings Guidance After Solid Q3 Performance

Altria Group, Inc. reports strong third-quarter results, driven by its smokeable and oral tobacco segments, and reaffirms its full-year earnings guidance.

Summary

• Altria reported its third-quarter and nine-month results on October 31, 2024, and reaffirmed its full-year adjusted diluted EPS guidance.
• The company's third-quarter net revenues were $6.259 billion, a slight decrease of 0.4% compared to the same period last year, while revenues net of excise taxes increased by 1.3% to $5.344 billion.
• Reported diluted EPS for the third quarter increased by 9.8% to $1.34, and adjusted diluted EPS increased by 7.8% to $1.38.
• For the first nine months of 2024, net revenues decreased by 2.5% to $18.044 billion, and revenues net of excise taxes decreased by 0.9% to $15.338 billion.
• Reported diluted EPS for the first nine months increased by 39.7% to $4.75, and adjusted diluted EPS increased by 1.6% to $3.84.
• Altria is initiating an 'Optimize & Accelerate' initiative to modernize processes, expecting at least $600 million in cumulative cost savings over the next five years, with initial charges of $100 million to $125 million.
• The company repurchased 13.5 million shares in the third quarter at an average price of $50.37, totaling $680 million, and has $310 million remaining under its current share repurchase program.
• Altria paid dividends of $1.7 billion in the third quarter and $5.1 billion in the first nine months, with a current annualized dividend rate of $4.08 per share.
• The company reaffirmed its full-year adjusted diluted EPS guidance in a range of $5.07 to $5.15, representing a growth rate of 2.5% to 4% from a base of $4.95 in 2023.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. While there are some challenges, such as declining cigarette volumes, the company is showing growth in key areas like NJOY and is taking steps to improve efficiency and return value to shareholders. The reaffirmation of full-year guidance also contributes to the positive sentiment.

Positives

• Altria's adjusted diluted EPS increased by 7.8% in the third quarter and 1.6% for the first nine months.
• The smokeable products segment demonstrated resilience, particularly with the Marlboro brand.
• The oral tobacco products segment maintained profitability and market momentum.
• NJOY's shipment volumes for both consumables and devices showed significant growth.
• The 'Optimize & Accelerate' initiative is expected to generate substantial cost savings.
• Altria continues to return capital to shareholders through share repurchases and dividends.
• The company increased its dividend by 4.1% in August.
• Altria has established new SBTi-approved targets, including a net-zero emissions by 2050 target.

Negatives

• Third-quarter net revenues decreased slightly by 0.4%.
• Net revenues for the first nine months decreased by 2.5%.
• Smokeable products segment reported a decrease in domestic cigarette shipment volume by 8.6% in the third quarter and 10.6% for the first nine months.
• Marlboro's retail share of the total cigarette category decreased by 0.6 share points in the third quarter and 0.2 share points for the first nine months.
• The oral tobacco products segment experienced a decrease in adjusted OCI margins by 2.5 percentage points in the third quarter and 1.7 percentage points for the first nine months.
• The oral tobacco products segment reported a decrease in domestic shipment volume by 1% when adjusted for calendar differences and trade inventory movements in the third quarter and 2.5% for the first nine months.
• The company expects to record charges of approximately $100 million to $125 million related to the 'Optimize & Accelerate' initiative.

Risks

• The company faces risks related to changes in consumer preferences and purchasing behavior.
• The growth of the e-vapor category, including illicit products, is impacting cigarette consumption.
• Illicit trade in tobacco products and the sale of products designed to avoid regulations pose a risk.
• Altria faces challenges in developing and commercializing innovative products.
• Macroeconomic and geopolitical conditions, including inflation, can affect consumer behavior.
• The company is subject to litigation and governmental investigations.
• Regulatory actions and inaction by the FDA pose a risk.
• Increases in tobacco product-related taxes could impact sales.
• The company relies on a few significant facilities and suppliers, which could be disrupted.
• Altria may be required to write down intangible assets due to impairment.
• The company faces risks related to health epidemics and pandemics.
• Attracting and retaining a skilled workforce is a challenge due to the decreasing social acceptance of tobacco.
• The company is subject to various U.S. and foreign laws and regulations.
• There are risks concerning tax positions and changes to tax laws.
• The company faces risks related to climate change and environmental sustainability.
• Disruptions in credit and capital markets could impact access to funding.
• A downgrade of credit ratings could increase borrowing costs.
• The company's information systems are vulnerable to cyber-attacks and security breaches.
• There are risks associated with the 'Optimize & Accelerate' initiative, including the ability to realize cost savings and reinvest them effectively.
• The investment in ABI carries risks related to macroeconomic conditions, foreign currency exchange rates, and ABI's business results.
• The investment in Cronos carries legal, regulatory, and reputational risks.

Future Outlook

Altria reaffirms its full-year adjusted diluted EPS guidance of $5.07 to $5.15, expecting growth to be weighted to the second half of the year. The company will continue to monitor external conditions related to the economy, consumer behavior, illicit e-vapor enforcement, and regulatory developments. They also plan to reinvest cost savings from the 'Optimize & Accelerate' initiative in their businesses.

Management Comments

• Billy Gifford, Altria's Chief Executive Officer, stated that Altria delivered outstanding results in the third quarter.
• He highlighted the solid operating companies income growth in the smokeable products segment and the continued profitability in the oral tobacco products segment.
• He also mentioned the company's commitment to rewarding shareholders and making investments in pursuit of their Vision.
• Management believes the 'Optimize & Accelerate' initiative will accelerate progress toward their Vision.

Industry Context

Altria's results reflect the ongoing challenges and shifts in the tobacco industry, including the decline in traditional cigarette consumption and the growth of alternative products like e-vapor and nicotine pouches. The company's focus on smoke-free products and cost optimization aligns with broader industry trends as companies adapt to changing consumer preferences and regulatory pressures. The growth of illicit e-vapor products is a significant concern for the industry, impacting legal sales and market share.

Comparison to Industry Standards

• Altria's performance is being compared to other major tobacco companies such as Philip Morris International (PMI), British American Tobacco (BAT), and Imperial Brands.
• PMI's focus on smoke-free products, particularly IQOS, is a key point of comparison, especially after Altria assigned the commercialization rights to PMI.
• BAT and Imperial Brands are also navigating similar challenges related to declining cigarette volumes and the growth of alternative products.
• Altria's 'Optimize & Accelerate' initiative is similar to cost-cutting and efficiency programs being implemented by other large consumer goods companies.
• The growth of NJOY is being compared to the performance of other e-vapor brands in the market, such as Juul and Vuse.
• The retail share performance of Marlboro is a key metric compared to other premium cigarette brands.
• The growth of on! nicotine pouches is being compared to other oral nicotine pouch brands in the market, such as Zyn.

Stakeholder Impact

• Shareholders will benefit from continued dividends and share repurchases.
• Employees may be affected by the 'Optimize & Accelerate' initiative, which includes employee separations.
• Customers will see continued investment in smoke-free products and innovation.
• Suppliers and distributors may be impacted by changes in the company's operations and supply chain.
• Creditors will be interested in the company's financial stability and ability to meet its obligations.

Next Steps

• Altria will continue to develop and finalize detailed plans for the additional phases of the 'Optimize & Accelerate' initiative.
• The company will update estimated related costs and cumulative cost savings as such amounts become probable and reasonably estimable.
• Altria expects to complete its current share repurchase program by December 31, 2024.
• The company will publish the final equity and civil rights assessment report by the end of 2024.
• Altria will continue to monitor external conditions related to the economy, consumer behavior, illicit e-vapor enforcement, and regulatory developments.

Key Dates

Keywords

Altria, Tobacco, Earnings, EPS, Marlboro, NJOY, Smokeable Products, Oral Tobacco, Dividends, Share Repurchase, Cost Savings, E-vapor, Nicotine Pouches, MST