8-K: Altria Reports Mixed Q1 Results, Reaffirms Full-Year Guidance Amidst Market Shifts

Altria Group reported a decrease in net revenues and adjusted diluted EPS for the first quarter of 2024, while reaffirming its full-year adjusted diluted EPS guidance.

Summary

• Altria's net revenues decreased by 2.5% to $5.6 billion in the first quarter of 2024, primarily due to lower smokeable product revenues.
• Revenues net of excise taxes also declined by 1.0% to $4.7 billion.
• Reported diluted earnings per share (EPS) increased by 21.0% to $1.21, largely due to prior year charges related to JUUL and gains from the sale of ABI shares.
• Adjusted diluted EPS, however, decreased by 2.5% to $1.15.
• The company reaffirmed its full-year adjusted diluted EPS guidance range of $5.05 to $5.17, representing a growth of 2% to 4.5% from 2023.
• Altria sold 35 million ordinary shares of Anheuser-Busch InBev (ABI) and ABI repurchased 3.3 million shares, generating approximately $2.4 billion in proceeds.
• A $2.4 billion increase to the share repurchase program was authorized, with an accelerated share repurchase program (ASR) initiated.
• NJOY reported shipment volumes of 10.9 million units for consumables and 1.0 million units for devices, with a retail share of 4.3% in the U.S. multi-outlet and convenience channel.
• The company paid dividends of $1.7 billion in the first quarter and retired approximately $1.1 billion of outstanding debt at maturity.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company reaffirmed its full-year guidance and made strategic moves like the ABI share sale and share repurchase program, the Q1 results showed declines in revenue and adjusted EPS, along with volume declines in key product categories. The mixed results and ongoing challenges in the tobacco industry temper any strong positive sentiment.

Positives

• Altria reaffirmed its full-year adjusted diluted EPS guidance, indicating confidence in future performance.
• The sale of ABI shares generated significant proceeds of $2.4 billion, which was used to expand the share repurchase program.
• NJOY's retail share increased sequentially, showing positive momentum in the e-vapor market.
• The company demonstrated a commitment to shareholder returns through dividends and share repurchases.
• Altria retired $1.1 billion of outstanding debt, improving its financial position.

Negatives

• Net revenues decreased by 2.5% and adjusted diluted EPS decreased by 2.5% in the first quarter.
• Smokeable product shipment volume decreased by 10%, indicating a decline in traditional cigarette sales.
• Oral tobacco products shipment volume also decreased by 3.1%, reflecting challenges in that segment.
• Marlboro's retail share decreased sequentially, suggesting increased competition.
• The discount cigarette category gained share, indicating pressure on premium brands.

Risks

• The company faces challenges from the growth of illicit e-vapor products and other innovative tobacco products.
• Macroeconomic pressures and inflation could impact consumer spending and purchasing behavior.
• Regulatory, litigation, and legislative developments pose ongoing risks to the business.
• The company is exposed to risks related to supply chain disruptions and reliance on key suppliers.
• There are risks associated with the company's investments in ABI and Cronos, including potential impairment losses.

Future Outlook

Altria reaffirmed its 2024 full-year adjusted diluted EPS guidance range of $5.05 to $5.17, expecting growth to be weighted to the second half of the year. The guidance includes the impact of two additional shipping days and assumes limited impact from illicit e-vapor enforcement. The guidance excludes an estimated per share gain of $1.17 related to the sale of the IQOS Tobacco Heating System commercialization rights expected in the second quarter of 2024.

Management Comments

• Billy Gifford, Altria's Chief Executive Officer, stated that they made meaningful progress in pursuit of their Vision and that their traditional tobacco businesses continued to perform well in a challenging environment.
• He also noted continued early momentum from NJOY and believes their businesses are on track to deliver against full-year plans.
• Gifford highlighted the company's commitment to maximizing returns on investments and delivering strong shareholder returns through the sale of a portion of their investment in ABI and the expansion of the share repurchase program.

Industry Context

The results reflect the ongoing challenges in the tobacco industry, including declining cigarette volumes and the rise of alternative nicotine products. Altria's focus on smoke-free products like NJOY and oral nicotine pouches aligns with the industry's shift towards potentially less harmful alternatives. The company's performance is also influenced by macroeconomic factors and regulatory pressures affecting the broader tobacco market.

Comparison to Industry Standards

• Altria's cigarette volume decline of 10% is significant, and is worse than the estimated industry decline of 9%, indicating market share losses.
• The growth in the oral nicotine pouch category to 40.1% of the U.S. oral tobacco category highlights a broader industry trend, with competitors like Swedish Match (now part of Philip Morris International) also experiencing growth in this segment.
• Altria's on! brand's share of the nicotine pouch category decreased by 6.8 share points, suggesting increased competition from other players in the nicotine pouch market.
• The company's adjusted OCI margins in smokeable products decreased by 0.2 percentage points to 60.2%, which is a key metric to compare against competitors like British American Tobacco and Imperial Brands.
• The sale of ABI shares and subsequent share repurchase program is a strategic move to return capital to shareholders, similar to actions taken by other large consumer goods companies.

Stakeholder Impact

• Shareholders will benefit from the expanded share repurchase program and continued dividend payments.
• Employees may be impacted by the shift in R&D investments towards new product platforms.
• Customers will see continued availability of traditional tobacco products and the expansion of smoke-free alternatives.
• Suppliers may be affected by changes in product demand and R&D focus.
• Creditors will see a reduction in debt with the retirement of $1.1 billion of outstanding debt.

Next Steps

• The company expects to receive the remaining 15% of shares under the ASR program by June 30, 2024.
• Altria plans to complete the remaining $1 billion share repurchase program by December 31, 2024.
• The company will continue to monitor market conditions and regulatory developments.
• Altria will focus on marketplace activities in support of smoke-free products and continued research and development.

Key Dates

Keywords

Altria, Earnings, Q1 2024, Tobacco, NJOY, Share Repurchase, ABI, EPS, Smokeable Products, Oral Tobacco, Dividends