Q4 2023 Earnings Summary
- Marlboro continues to grow its share within the highly profitable premium cigarette segment, demonstrating resilience in a competitive marketplace and maintaining its aspirational brand status.
- Early results from NJOY's market expansion are encouraging, with increases in national retail share following limited promotional offers; Altria plans to further expand NJOY promotions and marketing activations, which could contribute meaningfully to growth in the e-vapor category. ,
- Regulatory actions are beginning to reduce the availability of illicit e-vapor products, with early signs of success in states like Louisiana; this may benefit Altria by reducing illicit market competition and allowing their legitimate products like NJOY to capture more market share.
- Altria is experiencing significant declines in cigarette volumes, with an estimated 8% industry decline in 2023, primarily due to the growth of illicit e-vapor products, which negatively impacts their core business. ,
- The company's smokable segment has faced consecutive quarters of negative sales and operating profit growth, raising concerns about the sustainability of their financial model amid heightened competition and macroeconomic pressures affecting consumers' discretionary income. , ,
- Altria's ability to offset volume declines with pricing strategies is under pressure due to increased competition and promotional activities, leading to doubts about returning to revenue growth in the smokable segment and achieving their long-term growth targets. , ,
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Earnings Growth Guidance
Q: Are your longer-term earnings targets still achievable?
A: Yes, Altria believes their longer-term targets are achievable. While they guided for low single-digit earnings growth in 2024 following similar growth in 2023, they emphasize that their growth algorithm is on a compounded annual basis and there will be variability due to investments like the NJOY acquisition. They anticipate that as investments ease over time and profitability increases in other categories like on!, they will return to mid-single-digit growth. -
Sustainability of Smokable Segment
Q: Is your smokable segment's financial model sustainable?
A: Altria is confident in the sustainability of their smokable segment. Despite negative sales and OCI growth for two consecutive quarters, they highlight that macroeconomic pressures and illicit products are impacting volumes. They focus on maximizing profitability over the long term while making appropriate investments in Marlboro and growth categories. -
Price Realization Deceleration
Q: Why did price realization decelerate in the smokable business?
A: The deceleration was due to both trade-down within Marlboro and increased promotional spending. Altria used the Marlboro Black and Gold packs to provide options for consumers under economic pressure, keeping them within the Marlboro franchise. They emphasize the importance of looking at price realization over the long term rather than quarterly fluctuations. -
Competitive Landscape and Strategy
Q: How are you navigating the competitive landscape in cigarettes and e-vapor?
A: The combustible segment remains competitive, with consumers under economic pressure and an increase in illicit products. Marlboro continues to grow its share in the premium segment and remains steady post-pandemic. In e-vapor, competitors have increased promotional spending as Altria expands NJOY's distribution. Altria feels good about NJOY's proposition and early consumer feedback. -
Investments Impacting EPS Growth
Q: Will increased investments affect your ability to generate EPS growth?
A: While investments in smoke-free products like NJOY and Ploom will accelerate in 2024, Altria's core businesses remain strong. They expect more investment in NJOY as they're now in 75,000 stores and are filing for Ploom in the first half of 2025. They believe their core tobacco business is strong enough to support these investments and continue generating EPS growth. -
Regulatory Changes Impact
Q: What impact have regulatory changes in Louisiana had on illicit vaping products?
A: Early signs are encouraging in Louisiana, where new regulations require manufacturers to certify compliance with FDA guidelines. Altria is seeing illicit products being removed from the marketplace. Several other states have passed or are considering similar legislation. -
California Menthol Ban Effects
Q: How did the California menthol ban affect your sales?
A: Legitimate shipments to California decreased by about 15%, with black market activity increasing. Some menthol smokers switched to non-menthol Marlboro cigarettes, leading to a retail share increase for Marlboro in California. However, overall sales in California decreased, commensurate with the industry. -
Potential National Menthol Ban Impact
Q: What would be the impact of a national menthol cigarette ban on your sales?
A: It's difficult to predict without knowing the final rule and enforcement activities. Altria notes unintended consequences observed in California, such as black market activity and illicit products entering the market. They emphasize the need for the FDA to consider these factors. -
Price Strategy Divergence
Q: Will you react to competitors' more aggressive pricing strategies?
A: Altria acknowledges competitors' aggressive moves in segments like menthol and discount categories. They've made investments in these areas while maintaining Marlboro's steadiness in the premium segment. They utilize data analytics and revenue growth management to be efficient and effective, and have successfully navigated such competitive dynamics in the past. -
Impact of E-Cigarettes on Volumes
Q: How much are e-cigarettes and modern oral products affecting cigarette volumes?
A: Modern oral products have minimal impact, historically accounting for about 1% of cross-category movement. Illicit e-vapor products contribute to 1.5% to 2.5% of the industry volume decline. The majority of the volume decline is driven by illicit e-vapor products rather than legal e-cigarettes or modern oral products. -
NJOY Sell-Through Trends
Q: How are NJOY's sell-through trends progressing?
A: NJOY's shipment volume was $11 million, with a national share of 3.7% during the period owned by Altria. Small-scale promotions increased national share by an incremental 0.03% in November and another 0.03% in December. Early results are encouraging, and Altria plans to expand marketing activations nationwide this year. -
Risk of Modern Oral Nicotine to Youth
Q: Are modern oral nicotine products a risk to young people?
A: Altria acknowledges there could be a risk if not marketed and sold responsibly. They have requested the FDA to issue marketing guidelines for the category to protect harm reduction for adults while preventing underage use. Altria's approach to the marketplace involves minimal interaction with underage individuals.