Altria: Business Update

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June 2024: PMTA submission for on! PLUS

Altria announced the submission of Pre-market Tobacco Product Applications (PMTAs) to the US Food and Drug Administration (FDA) for on! PLUS oral nicotine pouch products. The PMTAs were submitted by Helix Innovations, a wholly-owned subsidiary of Altria.

on! PLUS is a tobacco-derived nicotine (TDN) pouch product made from a proprietary “soft-feel” material to provide a more comfortable experience and is larger than the leading US brands. Helix submitted PMTAs for nine products: three flavors (tobacco, mint, wintergreen) in three different nicotine strengths.

Helix currently sells on! nicotine pouches in the US. In Q1 2024, on! reported +32% year-on-year shipment volume growth, achieving 7.1% retail share of the total US oral tobacco category (a distant #2). Recall that ZYN’s shipment volume grew +80% in the same period.

June 2024: NJOY receives first-ever FDA authorizations for menthol e-vapor products

The US FDA issued marketing orders to four NJOY menthol products: two NJOY ACE menthol pods (2.4% and 5% nicotine strength) and two NJOY DAILY disposables (4.5% and 6% nicotine strength). These authorizations are based on the FDA review of the PMTAs submitted by NJOY in March 2020 (i.e. more than 4 years from application to the conclusion of review). For further details: The US FDA: PMTA.

Altria states that “FDA authorization of NJOY menthol e-vapor products provides regulated alternatives to the illicit flavored disposable e-vapor products”. In addition to NJOY ACE being the only pod-based e-vapor product with marketing authorization from the FDA, NJOY franchise now has the first and only menthol e-vapor products authorized by the FDA to date. In Q1 2024, NJOY broadened distribution to over 80,000 stores and expects to expand to ~100,000 stores by year-end. NJOY also moves forward with the roll-out of the first retail trade program to achieve optimal retail visibility and product fixture space.

As a result of the marketing orders issued, Altria is obliged to pay additional $250 million in relation to the NJOY acquisition. In May 2024, NJOY submitted a supplemental PMTA to the FDA for the NJOY ACE 2.0 device which incorporates Bluetooth-enabled access restriction technology (i.e. user authentication before unlocking the device in order to prevent underage use). NJOY also re-submitted PMTAs for Blueberry and Watermelon pod products that work exclusively with the NJOY ACE 2.0 device. Contingent upon the FDA’s issuance of marketing orders for the Blueberry and Watermelon pod products, Altria may be obliged to pay (up to) $250 million in additional cash payments.

May 2024: NJOY Submits PMTAs for ACE 2.0 with Bluetooth-enabled Access Restriction Technology

NJOY submits supplemental Pre-market Tobacco Product Applications (PMTAs) to the US FDA for NJOY ACE 2.0 device – which has a Bluetooth-enabled access restriction technology designed to prevent underage use by authenticating the user before unlocking the device1. NJOY also re-submitted PMTAs for Blueberry and Watermelon pod products that work exclusively with the NJOY ACE 2.0 device – claiming that age & identity-based access restrictions are effective at preventing underage access in virtually all cases. Recall that NJOY previously received Marketing Denial Orders (MDOs) for its Blueberry and Watermelon pods mainly due to the US FDA’s underage use concerns.

NJOY re-iterates its aim to “responsibly provide flavored options for adult smokers and vapers” and positions the ACE 2.0 device “as a sound solution for US FDA to balance the known risk to youth with an opportunity to offer adults legal, regulated flavored products (e.g. instead of illicit disposables)”.

NJOY ACE is currently the only pod-based e-vapor product (device and three tobacco-flavored pods) with marketing authorization from the FDA. In Q1 2024, NJOY broadened distribution to over 80,000 stores and expects to expand to ~100,000 stores by year-end. NJOY is also rolling out a retail trade program, which is designed to help achieve better retail visibility and product fixture space. For further details: Altria: Q1 2024 Results

June 2023: NJOY Acquisition & FY23 Guidance Update

Altria completed the acquisition of NJOY and updated FY23 EPS guidance in connection with this acquisition (i.e. as a result of the planned investments behind the US commercialization of NJOY ACE)2

–  Identified a total of ~70,000 US retail stores for the initial NJOY ACE expansion phase. This represent ~70% of e-vapor volume and 55% of cigarette volume in the US multi-outlet and c-store channel

– Financial results for NJOY to be reported within the “All Other”category as of Q2 2023

– Expects the Transaction to be cash flow accretive in 2025 and EPS accretive in 2026. Also expects the return on invested capital to exceed the current WACC by 2027

As a result of the Transaction, FY23 EPS guidance is reduced by $0.09-$0.10 (~2%)

–  New guidance: EPS in a range of $4.89-$5.03, representing a growth rate of 1%-4% from a base of $4.84 in 2022

– Old guidance: EPS in a range of $4.98-$5.13, representing a growth rate of 3%-6%

We note that: Altria’s financial return expectations from Strategic Transactions has proven to be overly optimistic in the past (e.g. JUUL, Cronos). Thereby, we take the “expectations from the NJOY acquisition” with a pinch of salt. Moreover, we expect the Altria’s future earnings growth to be negatively impacted by further “RRP catch-up investment”.

References:

  1. https://investor.altria.com/press-releases/news-details/2024/NJOY-Submits-Premarket-Tobacco-Product-Applications-to-the-FDA-for-NJOY-ACE-2.0-Featuring-Bluetooth-enabled-Access-Restriction-Technology/default.aspx ↩︎
  2. https://investor.altria.com/press-releases/news-details/2023/Altria-Completes-Acquisition-of-NJOY-Holdings-Inc.-Updates-2023-Full-Year-Earnings-Guidance/default.aspx ↩︎

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