Top-line & Bottom-line results1
Revenue: down -1.2% to $4.76Bn in Q1 2023 (expected $4.9Bn)
Adjusted diluted EPS: up +5.4% to $1.18 in Q1 2023 (expected $1.18)
FY23 EPS Guidance re-iterated: $4.98-5.13 representing a growth rate of 3-6% from the base of $4.84 in FY22 (midpoint 4.5% is a touch lower than the 5% growth achieved in FY22)
Key Highlights
Smokeable products:
– Revenue net of excise: -1.4% in Q1 2023
– Adj. operating margin: +0.2% in Q1 2023
– Adjusted margin: 60.4% in Q1 2023 (vs. 59.5% in Q1 2022)
– Volume: -11.1% (including cigars), -11.4% (cigarettes only), -9% (adjusted)
– Q1 2023 volume decline is a touch less than Q4 2022 (-12%), but faster than any other quarter in 2022 (-6.4% in Q1 2022, -10.9% in Q2 2022 and -9% in Q3 2022)
– Cigarette Retail SoM: 47% in Q1 2023 (-1.1% lower than Q1 2022)
Altria 12-month rolling cigarette volume: 82.4Bn (12-m SoM: 47.6%)
– Market size: 173Bn (lost touch with the 200Bn sticks/10Bn packs anchor)
– Pricing Power: Revenue per [smokeable] pack up +11% from $4.0 in Q1 2022 to $4.45 in Q1 2023; consequently, adjusted operating company income (OCI) per pack is up +12.5% from $2.39 to $2.69
Oral tobacco:
– Revenue and adj. OCI are up +2.7% and +2.2%, respectively, in Q1: OCI margin down 40bps to 69.3%
– The fast growth in on! fails to compensate for the volume/SoM losses in Copenhagen & Skoal: -1.8% smokeless volume decline in Q1, despite on! (nicotine pouches) growing 38% and reaching 6.5% SoM
– Total Retail SoM down -1.8% to 45.2% in Q1 (FY22 SoM: 46.4%)
Our take-away
Altria manages the ailing US cigarette business well. However, -11.4% year-on-year volume decline is “hard to swallow” and -8.5% 12-month industry decline (Altria’s estimate) is worse than the preceding quarters. Moreover, downtrading pressure remained elevated as the inflationary pressures caused a significant increase in market share of fourth tier/discount brands.
“Rotation to value” trade coupled with a “news not that bad” misperception can occasionally help MO venture a move towards $48-50. However, MO needs a clear/concrete strategy to break out of the ailing US cigarette business (i.e. transformation to RRP/NGPs and/or expansion to new categories/geographies) to in order to sustainably break above the concrete wall of $48-$50.
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