- Altria posts strong earnings growth despite the faster than
expected decline in cigarette volumes. The accelerated decline
in cigarette volumes signals a faster shift in consumer
preferences away from cigarettes.
- Concerned with these declines, Altria has announced its
plan to enter the e-cigarettes market by the second half of
this year. As e-cigarettes is a relatively new category, Altria
is not expected to face a lot of problems in catching up with
) posted a strong set of first quarter numbers on April 25. Its
adjusted diluted earnings per share (
) grew 10.2% y-o-y to $0.54 per share. The company also reaffirmed
its full year adjusted diluted EPS guidance in the range of $2.35
to $2.41. It should be noted that Altria grew its earnings despite
the faster than expected decline in cigarette volumes during the
While it continues to leverage the rapid growth in the smokeless
tobacco segment led by its leading brands Copenhagen and Skoal, the
company also announced its intentions to enter the e-cigarettes
market later this year.
See Our Complete Analysis Of Altria
Cigarette Volumes Decline At A much Faster
Rising health concerns, slower consumption growth and higher
payroll taxes all contributed to a faster decline in cigarette
consumption in the U.S. during the first quarter. Altria's
cigarette shipment volume declined by 5.2% y-o-y led by the
industry's rate of decline at 6.2% and one less shipping day.
However, retail share gains made by the company's cigarette
brands helped it reduce the potential impact of these factors.
Altria's total market share in the category by volume increased by
0.5% to 50.5% led by its flagship Marlboro brand which held more
than 43.5% of the market. Despite lower volumes, adjusted operating
income from the cigarettes and cigars division grew by 1.3%,
primarily driven by higher prices.
These figures clearly suggest that Altria continues to do well
in terms of creating value for its shareholders amid declining
cigarette consumption in the U.S., helped by calibrated pricing
measures and effective promotional strategies for its brands.
However, the company should be concerned about the accelerated rate
of decline in cigarette volumes observed during the first
Since 2009, cigarette consumption volume in the U.S. has
declined at a 3% CAGR to reach around 271 billion sticks in 2012.
The fact that this rate of decline accelerated to more than 5% in
the last quarter, when total consumer spending in the U.S. actually
increased, is worrisome. It reflects a faster than expected shift
in consumer preferences away from the category. Moreover, the
provision for a federal tax hike of $0.94 per pack of cigarettes
under the U.S. government's budget plan for fiscal 2014, if
implemented, could make matters worse for the industry very
quickly. All of these concerns potentially drove the company's
decision to start dealing in another category of products, i.e.
e-cigarettes, which have been witnessing rapid growth at the
expense of their traditional counterparts.
Altria's E-Cigarette Announcement Catching Up With The
Along with its first quarter results, Altria announced its plans
to introduce e-cigarettes into a lead market through one of
its subsidiaries, Nu Mark, during the second half of the year. As
, we think this is a positive move and reflects the management's
focus on sustainable long-term value creation for its shareholders
amid a rapidly declining market for cigarettes.
Other players in the industry, such as Lorillard and Reynold's,
have already embraced e-cigarettes and entered the market through
the acquisition of Blu cigs and the development of a computer chip
based "digital" cigarette, respectively. Lorillard's
e-cigarette sales soared more than 46% sequentially to $57 million
during the first quarter, reflecting rising demand for these
products. The company now holds more than 40% of the e-cigarettes
market in the U.S.
As it would suggest, Altria has been a bit late to jump into the
category and might have some catching up to do with its competitors
initially. However, it should be noted that unlike traditional
cigarettes which have been around for years and have consumers that
are characterized by huge brand loyalty, e-cigarettes is a
relatively new category and the company is not expected to face a
lot of problems in attracting consumers towards its new product for
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