Top-line & Bottom-line results1
Revenue: down -0.1% to $5.08Bn in Q4 (expected $5.15Bn); down -2% to $20.7Bn in FY22
Adjusted diluted EPS: up +8.3% to $1.18 in Q4 (expected $1.17); up +5% to $4.84 in FY22
FY23 EPS Guidance: $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:
– Net revenue: -2.4% in Q4 (vs. -1.5% YTD9: first 9 months of 2022)
– Revenue net of excise: +0% in Q4 (vs. +0.6% YTD9)
– Adjusted margin: 58.4% in Q4 (vs. %59.2% YTD9)
– Volume: -12% in Q4 (vs. -%8.9 in YTD9)
– Q4 volume decline is faster than any other quarter in 2022: -6.4% Q1, -10.9% Q2 and -9% Q3
– Cigarette Retail SoM: 47.4% in Q4 2022 (-0.7% lower than YTD9: 48.1%)
Altria FY22 cigarette volume: 84.7Bn (FY22 SoM: 47.9%)
– Market size: 177Bn (lost touch with the 200Bn sticks/10Bn packs anchor)
– Marlboro SoM: 42.5% (only 1% erosion in 5 years)
– Pricing Power: Revenue per [smokeable] pack up +14% from $3.9 in Q4 2021 to $4.4 in Q4 2022; consequently, adjusted operating company income (OCI) per pack is up +18% from $2.2 to $2.6
Oral tobacco:
– Revenue and adj. OCI are down -4% and -5.1%, respectively, in Q4: OCI margin down 70bps to 61.3%
– 4.3% volume decline in Q4, despite on! (nicotine pouches) growing 66% and reaching 5.9% SoM
– Total Retail SoM down 1.7% to 45.9% in Q4 (down 1.3% to 46.4% in FY22)
Our take-away
Trading at 9.3x adj. EPS and 8.7x adj. EV/EBITDA. Dividend yield: 8.4% (based on Jan 31, 2023 closing price: $45)
The ailing US cigarette business is well-managed. However, Q4 smokeable volume decline (-12%) was higher than any other quarter in 2022 and the fast volume decline makes it increasingly difficult to deliver profit growth. “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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