8-K: Altria Reports Mixed Q2 Results, Narrows Full-Year EPS Guidance

Altria's second-quarter results show a mixed performance with growth in smoke-free products but declines in traditional tobacco, leading to a narrowed full-year earnings guidance.

Summary

• Altria reported its second-quarter and first-half 2024 financial results, highlighting a transition towards smoke-free products.
• The company narrowed its full-year adjusted diluted EPS guidance to a range of $5.07 to $5.15, representing a 2.5% to 4.0% growth from 2023.
• Second-quarter net revenues decreased by 4.6% to $6.2 billion, while first-half net revenues decreased by 3.6% to $11.8 billion.
• Adjusted diluted EPS for the first half of 2024 declined by 1.6%, but the company expects growth to be weighted towards the second half of the year.
• NJOY's smoke-free products showed strong growth, with consumable shipments up 14.7% sequentially and device shipments up 80.0% sequentially in the second quarter.
• Altria completed a $2.4 billion accelerated share repurchase program and returned over $5.8 billion to shareholders through buybacks and dividends in the first half of the year.
• The company recorded a pre-tax charge of approximately $140 million in Q2 related to a change in the fair value of contingent payments for the NJOY acquisition.
• A non-cash, pre-tax charge of $354 million was recorded for an impairment of the Skoal trademark.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While there are positive developments in the smoke-free category and shareholder returns, the overall financial results show declines in revenue and earnings, and the company faces significant challenges in the traditional tobacco market.

Positives

• NJOY's smoke-free products are showing strong growth in shipment volumes and market share.
• Altria received FDA marketing authorizations for NJOY menthol e-vapor products, a significant regulatory milestone.
• The company completed a substantial share repurchase program and returned significant capital to shareholders.
• Altria's adjusted OCI margins in the smokeable products segment increased by 1.2 percentage points in the second quarter.
• The company is making progress in transitioning adult smokers to smoke-free alternatives.

Negatives

• Net revenues decreased by 4.6% in the second quarter and 3.6% in the first half of 2024.
• First-half adjusted diluted EPS declined by 1.6%.
• Smokeable products segment reported a 13.0% decrease in domestic cigarette shipment volume in the second quarter.
• The oral tobacco products segment reported a 1.8% decrease in domestic shipment volume in the second quarter.
• Altria recorded a $354 million non-cash impairment charge for the Skoal trademark.
• The company recorded a pre-tax charge of approximately $140 million related to a change in the fair value of contingent payments for the NJOY acquisition.
• Marlboro's retail share of the total cigarette category decreased by 0.1 share point in the first half of the year.

Risks

• The company faces challenges from the decline in traditional cigarette consumption and the growth of illicit e-vapor products.
• Macroeconomic pressures and inflation may impact adult tobacco consumer purchasing behavior.
• Regulatory and litigation risks remain significant for the tobacco industry.
• The company's performance is subject to changes in consumer preferences and purchasing behavior.
• There are risks associated with the commercialization of innovative products and strategic transactions.
• The company is exposed to risks related to supply chain disruptions and reliance on key suppliers.
• The company is subject to various U.S. and foreign laws and regulations, including those related to climate change and environmental sustainability.
• The company is exposed to risks related to cyber-attacks and security breaches.

Future Outlook

Altria expects 2024 adjusted diluted EPS growth to be weighted to the second half of the year and has narrowed its full-year guidance to $5.07 to $5.15. The company will continue to monitor economic conditions, consumer behavior, illicit e-vapor enforcement, and regulatory developments.

Management Comments

• Billy Gifford, Altria's Chief Executive Officer, stated that Altria's momentum continues to build as they pursue their Vision to responsibly lead the transition of adult smokers to a smoke-free future.
• He also noted that the company's innovative smoke-free products delivered strong share and volume performance in the second quarter.

Industry Context

The announcement reflects the broader industry trend of declining traditional cigarette sales and a shift towards smoke-free alternatives. Altria's focus on NJOY and other smoke-free products aligns with this trend, as companies seek to adapt to changing consumer preferences and regulatory pressures. The growth of illicit e-vapor products is also a significant factor impacting the industry.

Comparison to Industry Standards

• Altria's performance is mixed compared to other tobacco companies. While the company is making progress in the smoke-free category, the decline in traditional cigarette sales is a common challenge across the industry.
• Philip Morris International (PMI) has also been focusing on smoke-free products, particularly with its IQOS system, which Altria previously had rights to in the US. The sale of these rights to PMI for $2.7 billion is a significant event.
• British American Tobacco (BAT) is another major competitor that is also investing heavily in smoke-free alternatives. Altria's NJOY performance will be closely watched against BAT's Vuse and other similar products.
• The growth of the nicotine pouch category, where Altria's on! brand competes, is also a key area of focus for the industry. The growth of the category is a positive for Altria, but the company's share of the category is declining.

Stakeholder Impact

• Shareholders will be impacted by the narrowed EPS guidance and the company's share repurchase program.
• Employees may be affected by the company's transition towards smoke-free products.
• Customers will see a continued focus on smoke-free alternatives and potential changes in product offerings.
• Suppliers and creditors will be impacted by the company's financial performance and strategic decisions.

Next Steps

• Altria will continue to invest in its smoke-free product portfolio.
• The company will monitor market conditions and regulatory developments.
• Altria expects to complete the remaining $990 million of its share repurchase program by December 31, 2024.
• The company will continue to focus on transitioning adult smokers to smoke-free alternatives.

Key Dates

Keywords

Altria, NJOY, smoke-free products, e-vapor, cigarettes, oral tobacco, earnings, EPS, share repurchase, dividends, FDA, Marlboro, Skoal, shipment volume, retail share