Business Overview Altria's origins date back to 1919, when it was founded as Philip Morris Companies Inc. The company quickly grew to become one of the largest tobacco manufacturers in the United States. In 2003, the company changed its name to Altria Group, Inc. to reflect its diversification beyond just the Philip Morris brand. Over the decades, the company has undergone numerous transformations, including the spin-off of its international tobacco operations in 2008 to form Philip Morris International.
In the late 1990s, Altria faced significant challenges when it was embroiled in a series of high-profile lawsuits related to the health effects of smoking. This led to the company reaching a landmark $206 billion settlement with state attorneys general, known as the Master Settlement Agreement. The settlement placed significant restrictions on the company's marketing and advertising practices.
Despite these legal challenges, Altria continued to grow and expand its business. In the 2010s, the company began to diversify beyond just traditional cigarettes, making strategic investments in e-vapor products, oral tobacco products, and the cannabis industry. These investments helped to offset declining cigarette sales as consumer preferences shifted.
Today, Altria's wholly-owned subsidiaries include leading manufacturers of both combustible and smoke-free products, such as Philip Morris USA, John Middleton Co., U.S. Smokeless Tobacco Company, Helix Innovations, and NJOY. Altria's brand portfolio includes iconic names like Marlboro, which continues to be the best-selling cigarette in the country, as well as Black & Mild, Copenhagen, and Skoal, among others.
The company's smokeable products segment, which includes cigarettes and machine-made cigars, has long been the backbone of its business, contributing the majority of its revenue and profitability. However, in recent years, Altria has placed a strong emphasis on diversifying its portfolio and transitioning adult smokers to potentially less harmful smoke-free alternatives, in line with its "Moving Beyond Smoking" vision.
Financial Performance
Altria's financial performance has been solid, with the company consistently generating strong cash flows and paying out an attractive dividend to shareholders. In 2023, the company reported annual net income of $8.13 billion, annual revenue of $20.50 billion, annual operating cash flow of $9.29 billion, and annual free cash flow of $9.09 billion.
On a quarterly basis, Altria's third-quarter 2024 results showcased the company's resilience. The company reported revenue of $6.26 billion, a slight decrease of 0.4% year-over-year, primarily due to lower shipment volume in the smokeable products segment, partially offset by higher pricing and higher volume in the oral tobacco products segment. Net income for the quarter stood at $2.29 billion, with operating cash flow of $2.34 billion and free cash flow of $2.33 billion.
Breaking down Altria's performance by segment, the smokeable products segment reported net revenues of $15.94 billion for the first nine months of 2024, a decrease of 3.3% compared to the same period in 2023. However, the segment's reported operating companies income (OCI) increased by 1.1% to $8.18 billion, with an impressive OCI margin of 61.5%.
The oral tobacco products segment showed growth, with net revenues of $2.08 billion for the first nine months of 2024, an increase of 4.6% year-over-year. However, the segment's reported OCI decreased by 24.2% to $996 million, primarily due to a $354 million non-cash impairment charge related to the Skoal trademark. The segment's reported OCI margin was 49.6% in this period.
Altria's "all other" category, which includes its NJOY e-vapor business and other initiatives, reported net revenues of $19 million for the first nine months of 2024. The segment's reported OCI significantly improved to $291 million, compared to $17 million in the same period of 2023, driven by the addition of NJOY's e-vapor business.
Overall, Altria's consolidated net revenues for the first nine months of 2024 were $18.04 billion, a decrease of 2.5% year-over-year. The company's consolidated reported operating income was $8.36 billion, a decrease of 4.5% compared to the same period in 2023.
Dividend History and Capital Allocation
Altria's dividend history is truly impressive, with the company having raised its dividend for 59 consecutive years, earning it the title of "Dividend King." The company's current annual dividend rate stands at $4.08 per share, yielding a generous 7.5% as of the latest quarter. Altria's commitment to returning capital to shareholders is further evidenced by its active share repurchase program, which has seen the company repurchase $680 million worth of shares in the third quarter of 2024 alone.
Embracing the Smoke-Free Future
While Altria's traditional tobacco business remains a significant part of its operations, the company has been actively shifting its focus towards the development and commercialization of smoke-free products. This strategic shift is exemplified by Altria's acquisition of NJOY, a leading e-vapor manufacturer, in 2023.
NJOY's performance has been a bright spot for Altria, with the brand's consumable shipment volume growing by over 15% in the third quarter of 2024 compared to the prior-year period. NJOY's retail share of the e-vapor category also increased by 2.8 percentage points year-over-year to 6.2%, showcasing the brand's growing popularity among adult consumers.
Altria's investment in NJOY is part of a broader strategy to position the company as a leader in the smoke-free product category, which it sees as a significant growth opportunity. The company's joint venture, Horizon Innovations, is also working on the development and commercialization of heated tobacco stick products, further diversifying Altria's smoke-free portfolio.
Regulatory Landscape and Challenges
The tobacco industry, including Altria, faces a complex and evolving regulatory environment. The U.S. Food and Drug Administration (FDA) has taken an active role in regulating the industry, with initiatives aimed at addressing underage use of tobacco products and promoting the development of potentially reduced-risk alternatives.
Altria has been actively engaged with the FDA and other stakeholders to navigate this regulatory landscape, advocating for policies that balance public health concerns with the needs of adult smokers seeking less harmful alternatives. The company's ability to successfully navigate this regulatory environment will be a key factor in its long-term success.
Financials
Altria's financial position remains strong, with the company consistently generating robust cash flows. The company's focus on operational efficiency and cost management has helped maintain its profitability despite challenges in the traditional tobacco market. Altria's revenue diversification strategy, particularly its investments in smoke-free products, is aimed at ensuring long-term financial stability and growth.
The company operates primarily in the United States and does not have significant international operations. The overall U.S. tobacco industry has seen declining cigarette volumes offset by growth in smoke-free products like e-vapor and oral nicotine pouches, with an estimated industry growth rate in the low-single digits.
Altria has reaffirmed its guidance to deliver 2024 full-year adjusted diluted EPS in a range of $5.07 to $5.15, representing a growth rate of 2.5% to 4% from a base of $4.95 in 2023. This guidance reflects the company's confidence in its ability to navigate the evolving tobacco landscape and deliver consistent financial results.
Liquidity
Altria maintains a solid liquidity position, which provides the company with financial flexibility to invest in growth opportunities, return capital to shareholders, and navigate potential market uncertainties. The company's strong cash flow generation, combined with its access to credit facilities, ensures that Altria can meet its short-term obligations and fund its strategic initiatives.
As of the most recent reporting period, Altria had a debt-to-equity ratio of -7.25, cash and equivalents of $3.69 billion, and an available credit line of $3.0 billion under a 5-year revolving credit facility. The company's current ratio stood at 0.44, and its quick ratio was 0.30. While these ratios might seem low in other industries, they are not unusual for tobacco companies, which typically have strong and predictable cash flows. Overall, there are no major liquidity concerns, as Altria maintains a strong balance sheet with ample cash and available credit.
Conclusion
Altria Group, Inc. (MO) is a well-established tobacco company that has demonstrated its ability to adapt to changing market conditions and consumer preferences. While its traditional cigarette business remains an integral part of its operations, the company's strategic focus on the development and commercialization of smoke-free products, exemplified by its acquisition of NJOY, positions it well to capitalize on the evolving landscape of the tobacco industry.
Altria's impressive dividend history, strong cash flow generation, and disciplined capital allocation make it an attractive investment for income-seeking investors. However, the company's success will ultimately depend on its ability to navigate the complex regulatory environment and continue to meet the evolving needs of adult tobacco consumers. As Altria continues to execute on its "Moving Beyond Smoking" vision, investors will be closely watching the company's progress in the smoke-free product category and its ability to drive long-term sustainable growth.
The company's recent financial performance, while showing some pressure on revenue due to declining cigarette volumes, demonstrates Altria's ability to maintain profitability through pricing power and cost management. With a clear focus on expanding its smoke-free portfolio and a reaffirmed guidance for 2024, Altria appears well-positioned to continue its transformation while delivering value to shareholders in the years to come.