Altria – Q1 2024 Results: Preview

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Release date: April 25, 2024 (before the opening bell)

Sell-side analyst expectations

Revenue and EPS decline are already factored in.

Revenue: $4.72Bn (down -0.9% vs. Q1 2023)

EPS: $1.15 (down -2.5% vs. Q1 2023)

FY24 Guidance

Following the Anheuser-Busch InBev stake sale and expansion of the existing share repurchase program (from $1Bn to $3.4Bn), Altria raised its FY24 EPS guidance to a range of $5.05 to $5.17 (midpoint: $5.11) – representing a growth rate of 2% to 4.5% from a base of $4.95 in 2023. Initial guidance was in a range of $5.00 to $5.15 (midpoint: $5.10), representing a growth rate of 1% to 4%.

– FY24 EPS growth to be H2 weighted (a lower Q1 2024 EPS already factored in)

– Limited impact from enforcement efforts in the illicit e-vapor market on combustible and e-vapor volumes (Recall: Illicit Trade – RRPs: The US)

What to watch out for?

(1) Cigarette volume decline: In FY23, Altria’s cigarette volume decline 9.9% to 76.3Bn sticks (adjusted: -10%). Industry volume (adjusted for inventory movements and other factors) declined 8% in the same period.

Cigarettes alone have more than 80% weight in Altria’s total revenue. Altria sold 101.4Bn sticks in FY20. In 3 years (2020-23), Altria’s cigarette volume is down 25% / 25Bn. Despite substantial net price realization (+8.8% in FY23), Altria’s 12-months rolling smokeable revenue (cigarettes & cigars) topped out at $18.2Bn in FY22 and declined 1.6% to $17.9Bn in FY23 – ending the decades-long growth streak. It is becoming increasingly difficult for Altria to extract more profit from a stagnating (shrinking) revenue base, especially when it is also forced to do major NGP catch-up investment.

According to the most recent NielsenIQ data, there is no slow-down in cigarette volume decline – neither for the overall market nor for Altria. Moreover, despite the sharp Retail Sales Price increases (price/mix: up more than 5%), the decline in turnover (US$ sales) is speeding up. America continues to: (1) smoke less (industry decline), (2) smoke less of pricey cigarettes (further premium segment decline). Thereby, America is spending less and less on Marlboro.

Inelastic category demand and unmatched brand strength have long allowed Altria to compensate 4% volume decline through price hikes and deliver strong profit growth. However, when the volume decline is stubbornly at 8%-10% (as cheaper and/or better nicotine alternatives exist), traditional commercial model started to fall apart. Altria is unlikely to deliver good news in terms of reversal of cigarette volume decline to the historical norms. This could also weigh on BAT shares.

(2) Smokeless performance: on! has been a remarkable growth engine for Altria with 38.5% volume increase in FY23. However, there are still three major issues: (1) on! growth fails to compensate for the volume losses of Copenhagen and Skoal (Altria’s overall category share is down 3.7pp in FY23); (2) on! is still sold at a major discount to ZYN; thereby, its (even) gross margin contribution is nowhere as “stellar” as ZYN’s; (3) as Altria reduces the price discounts (to improve profitability), on! significantly under-performs ZYN (up +62% in FY23) and the overall category in terms of growth (i.e. questionable brand strength). How will on!’s competitiveness improve against ZYN? Market will be looking for hints in Altria’s results.

(3) Update on NJOY: On a cautiously positive note, NJOY has recently started to gain some share (4% in Dec 2023) in fast-declining tracked/legal e-cigarette category. Market would like to hear more on NJOY’s commercial plans: distribution expansion (100k stores by the end of 2024), consumer off-take & repeat purchase, overall share progression and share in specific cross-sections.

(4) Fight against the illicit trade: Large tobacco companies are exploring all possible legislative and judicial pathways to fight the “illicit disposable” issue (- driving 1.5%-2.5% annual cigarette volume decline). State Directory Bills and litigation against illicit players are two publicized pathways. At the CAGNY Conference, Altria shared some early progress. More disclosures could follow at the Q1 2024 webcast.

(5) Growth Initiatives: Any meaningful update on smoke-free product development, US FDA submissions (PMTA / MRTP), international expansion (on!) and beyond-nicotine initiatives could offer a glimmer of hope in terms of Altria’s ability to find new pockets of growth. Recall: Altria: Winds of Change.

Further Readings:

Altria: FY23 Results

Altria – Q4 2023 Results: Preview

Altria: Q3 2023 Results

Altria – Q3 2023 Results: Preview

Altria: Dividends

Altria: Q2 2023 Results

Altria: Q1 2023 Results

Altria: Q4 & FY22 Results

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