Altria – Q2 2023: What to watch out for?

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Release date: August 1, 2023 (Tuesday) – 9:00am ET

Sell-side consensus

Revenue: $5.43Bn (+1% vs. $5.37Bn in Q2 2022)

EPS: $1.30 (+3% vs. $1.26 in Q2 2022)

Implying a flat revenue and 4% EPS growth in H1 2023 for Altria. Note that BAT reported 5.4% revenue decline and -0.2% operating profit decline in the US in H1 2023

What to watch out for? Cigarette volume decline

“One market, one product”. Altria is almost a pure-play US cigarette company:

– In FY22, 88% of Altria’s revenue and 87% of Altria’s operating profit is generated by combustibles

– Cigarettes have 98% volume weight in Altria’s combustibles business.  

Altria’s quarterly cigarette volume is declining by -10% (on average, on year-on-year basis) since Q2 2021. If the Q2 2023 volume comes around 20Bn, Altria’s 12-month rolling volume will be down to 80Bn for the first-time in history: implying a ~20Bn/20% volume loss in 2 years.

Accordingly, Altria’s 12-months rolling (total) revenue is flat at $18.1Bn since Q2 2021. It is becoming increasingly difficult for Altria to extract more profit from a stagnant revenue base – especially when it is also forced to do major NGP catch-up investment.   

Year-on-year cigarette volume decline is the most important number to watch during Altria’s Q2 2023 earnings release. BAT reported -12.4% own volume and -8.4% market volume decline in H1 2023. Altria reported -11.4% in Q1 2023. We believe Q2 2023 volume decline of 9-10% is already priced in.   

In addition, we will also scrutinize the performance of on! and (any) share gains by NJOY achieved under Altria’s ownership (mainly, through expansion of distribution). Any updates on the heated tobacco platform (SWIC development or PMTA application for Ploom) are also welcome.    

Price action

Indecisive. Moving Averages have converged: MA20 $45.6; MA50 $45.0; MA200 $45.6. Share price is stuck in a narrow range around $45.5 in the last two weeks – clearly, in need of a catalyst to define itself a direction.      

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