Altria – Q4 2023 Results: Preview

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Release date: February 1, 2024 (before the opening bell)

Sell-side analyst expectations

Marginal revenue and EPS decline are already factored in.

Revenue: $5.07Bn (down -0.3% vs. Q4 2022)

EPS: $1.17 (down -0.8% vs. Q4 2022)

FY23 Guidance

Altria narrowed and lowered the FY23 guidance during the Q2 2023 Earnings release (October 26, 2023): adj. EPS in a range of $4.91 to $4.98, representing 1.5% to 3% growth from $4.84 in FY22 (versus a range of $4.89 to $5.03, previously). EPS guidance midpoint is lowered by 1.5¢.

Deterioration in Earnings Growth: Altria’s FY23 growth will be lower than the 5% growth achieved in FY22 and H1 2023. Actually, Altria reported $2.50 adj. EPS in the first half of 2023; thereby, the guidance corresponds to $2.41 – $2.48 (mid-point: $2.445) EPS in the second half and implies a decline vs. H2 2022 ($2.46). According to Altria, this is primarily as a result of planned investments (marketing activities) to support the NJOY ACE commercial plans in the second half of 2023.

What to watch out for?

(1) Cigarette volume decline: Cigarettes alone have more than 80% weight in Altria’s total revenue. Since Q2 2021, Altria’s 12-month rolling cigarette volume is down more than 20Bn/20%. Accordingly, Altria’s 12-months rolling smokeable revenue (cigarettes & cigars) is flat at $18.1Bn (+/-$0.1Bn) in this period. As the smokeable revenue base stagnates, it is becoming increasingly difficult for Altria to deliver bottom-line growth – especially when it is also forced to do major NGP catch-up investment. For further details: Altria: Q3 2023 Results.

According to the recent NielsenIQ data, Altria’s volume decline has accelerated to -12.7% and -11.4% in the 2 and 4 weeks to January 13, 2024 (versus -10.4% in over the past 52-week period). Moreover, despite the sharp Retail Sales Price (RSP) increases, the decline in turnover (US$ sales) is speeding up. That is to say, American smokers are spending less and less on Marlboro.

Altria increased the cigarette list prices four times in 2023 and another time in January 2024. More-than-usual/larger price hikes suggest that Altria is in desperate need of exploiting the consumer price elasticities to the maximum through RGM (i.e. higher prices all across, selectively reduced through promotions at the regional or retail chain/store level) due to the unyielding volume pressure.

Nevertheless, we should highlight two points with regards to the Altria’s Q4 2023 report to be released next week:

– The recent acceleration in the decline trend corresponds to the last two weeks of 2023 and the first two weeks of 2024. Considering the time lag between Altria’s shipments and consumer off-take, this acceleration may show an extra negative impact only in the Q1 2024 results (watch-out: inventory movements in Q4 2023)

– (Benefit of the doubt) The recent acceleration could be related to an intensified “New Year Resolution” activity (i.e. more than last year) due to the increased cigarette prices, wider availability of alternatives, more media coverage or any other reason (note: this is nothing, but a cognitive exercise to find a meaningful reason for a temporary acceleration).

With or without further acceleration, it is clear that there is no softening in the cigarette volume decline trend for Altria as America continues to smoke less (- and even less of over-priced cigarettes). 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 alternatives exist), there may not be enough price hikes on Earth.

(2) Smokeless performance: on! has been a remarkable growth engine for Altria with 41% volume increase in the first 9 months of 2023. 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 3pp in the first nine months of 2023); (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 and the overall category in terms of growth (i.e. questionable brand strength). Market would definitely appreciate more product-level disclosure on on!.

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

(4) FY24 EPS Guidance: A slowdown in Altria’s EPS growth is already expected – a low single digit (1%-3%) growth instead of the “traditional” mid-single digit (4%-6%) growth. Accordingly, Market has priced in FY24 EPS of $5.1 for Altria. However, considering the dire operating conditions, the EPS growth risk is skewed towards the downside: i.e. we may hear “broadly in line with FY23 EPS” (around $5.0) as the revised FY24 guidance later in 2024.

Further Readings:

Altria: Dividends

Altria: Q2 2023 Results

Altria: Q1 2023 Results

Altria: Q4 & FY22 Results

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