Altria Group, Inc. (NYSE: MO), the leading tobacco company in the United States, has reported its first-quarter 2024 financial results, showcasing the strength of its diversified portfolio and strategic initiatives. The company's net income for the full year 2023 stood at $8.13 billion, while its annual revenue reached $20.50 billion. Altria's annual operating cash flow and free cash flow were $9.29 billion and $9.09 billion, respectively.
In the first quarter of 2024, Altria delivered adjusted diluted earnings per share (EPS) of $1.15, down 2.5% year-over-year. The company's net revenues for the quarter were $5.58 billion, a 2.5% decline compared to the same period in 2023. Altria's operating cash flow and free cash flow for the quarter were $2.88 billion and $2.82 billion, respectively.
Business Overview
Altria is a leading manufacturer and marketer of tobacco products in the United States. The company's portfolio includes iconic brands such as Marlboro, Black & Mild, Copenhagen, and Skoal, as well as innovative smoke-free products like NJOY and on!. Altria's business is divided into two main segments: Smokeable Products and Oral Tobacco Products.The Smokeable Products segment, which includes cigarettes and cigars, remains the core of Altria's business, accounting for approximately 88% of the company's total revenues in the first quarter of 2024. The Oral Tobacco Products segment, which includes moist smokeless tobacco (MST) and oral nicotine pouches, has been a focus of Altria's growth strategy as the company aims to transition adult smokers to potentially less harmful alternatives.
Operational Highlights
In the first quarter of 2024, Altria's Smokeable Products segment reported adjusted operating company income (OCI) of $2.45 billion, with an adjusted OCI margin of 60.2%. The segment's net revenues declined 3.6% year-over-year, primarily due to a 10% decrease in reported domestic cigarette shipment volumes. This volume decline was driven by the industry's overall decline rate, which the company estimates was 9% in the quarter, as well as retail share losses.Marlboro, Altria's flagship brand, maintained its strong position, with a retail share of 42% in the first quarter. The brand's share of the premium segment also increased by 0.7 percentage points to 59.3%, reflecting its continued appeal among adult smokers.
In the Oral Tobacco Products segment, Altria reported adjusted OCI of $435 million, with an adjusted OCI margin of 69.5%. The segment's net revenues increased 3.7% year-over-year, driven by higher pricing, which offset a 3.1% decline in reported shipment volumes. The growth of Altria's on! oral nicotine pouches, which saw a 32% increase in shipment volumes, was offset by declines in the company's moist smokeless tobacco (MST) brands.
Expansion of Share Repurchase Program
In March 2024, Altria announced a $2.4 billion accelerated share repurchase (ASR) program, under which the company received 46.5 million shares, representing 85% of the total repurchase amount. The company expects to receive the remaining 15% of the shares by the end of the second quarter of 2024. After the completion of the ASR program, Altria anticipates having $1 billion remaining under its currently authorized $3.4 billion share repurchase program, which it expects to complete by the end of the year.Investments and Acquisitions
Altria's acquisition of NJOY, a leading e-vapor manufacturer, in June 2023 has been a key strategic move for the company. In the first quarter of 2024, NJOY's distribution expanded to over 80,000 stores, and the company expects to reach approximately 100,000 stores by the end of the year. NJOY's retail share of consumables grew to 4.3% in the quarter, up 0.6 percentage points sequentially.Altria's majority-owned joint venture, Horizon Innovations LLC, continues to focus on the U.S. marketing and commercialization of heated tobacco stick products. As of the end of the first quarter, there are no products in the U.S. marketplace from the joint venture.
Regulatory Environment and Litigation
Altria operates in a highly regulated industry, with the U.S. Food and Drug Administration (FDA) playing a significant role in shaping the company's business environment. The company continues to engage with the FDA and other stakeholders to advocate for a well-regulated U.S. tobacco industry that embraces harm reduction and the enforcement of existing regulatory frameworks.Altria also faces ongoing litigation risks, including tobacco-related and other legal proceedings. The company records provisions for pending litigation when it determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. As of March 31, 2024, the company had an accrued liability of $364 million for tobacco and health and certain other litigation items.
Financial Position and Liquidity
Altria maintains a strong financial position, with $3.6 billion in cash and cash equivalents as of March 31, 2024. The company's debt-to-Consolidated EBITDA ratio was 2.1x at the end of the first quarter, well within its target range of approximately 2.0x.Altria's capital allocation priorities include funding its core business operations, investing in growth opportunities, and returning capital to shareholders through dividends and share repurchases. The company paid dividends of $1.7 billion during the first quarter of 2024 and expects to continue its progressive dividend policy, targeting mid-single-digit dividend growth annually through 2028.
Outlook and Guidance
For the full year 2024, Altria reaffirmed its guidance for adjusted diluted EPS in the range of $5.05 to $5.17, representing a growth rate of 2% to 4.5% from the base of $4.95 in 2023. The company expects its 2024 adjusted diluted EPS growth to be weighted towards the second half of the year, primarily due to the timing of the NJOY acquisition and the impact of additional shipping days in the Smokeable Products segment.Altria's management remains confident in the company's ability to navigate the evolving market landscape and continue delivering value to its shareholders. The company's diversified portfolio, strategic investments, and focus on tobacco harm reduction position it well for long-term success.
Risks and Challenges
Altria faces several risks and challenges in its operations, including:1. Regulatory and legislative actions: The company is subject to a broad and evolving regulatory and legislative framework, which could have a material impact on its business, results of operations, cash flows, or financial position.
2. Litigation risks: Altria is involved in various legal proceedings, including tobacco-related and other litigation, which could result in significant costs or adversely affect the company's operations.
3. Evolving consumer preferences: The company must anticipate and respond to changes in adult tobacco consumer preferences and purchasing behavior, including the growing popularity of innovative tobacco products.
4. Competitive landscape: Altria operates in a highly competitive industry, facing challenges from both traditional tobacco products and emerging alternatives, including the proliferation of illegal disposable e-vapor products.
5. Macroeconomic and geopolitical factors: Changes in macroeconomic conditions, such as inflation and interest rates, as well as geopolitical events, can impact adult tobacco consumers' discretionary income and purchasing behavior, affecting Altria's business.