Markets
MO

5 Reasons Altria Group Inc Executives Are Optimistic About the Future

Source: Altria

For dividend investors, Altria Group is an unparalleled success story, with the tobacco giant surviving decades of challenges to deliver consistent and growing dividend payments to its shareholders. Even with its past track record of defying skeptics, though, Altria still has not convinced everyone that it can weather the long-term trend away from smoking in the U.S., and the company has had to make smart moves to find growth opportunities elsewhere.

Fortunately, Altria has a solid executive team that is committed to finding ways to boost revenue and profits over time. As the new quarter begins, let's take a look at some of the initiatives management is focused on in their efforts to boost shareholder value (all quotes from CEO Marty Barrington).

"We are actually seeing a modest improvement, I think, in the economic situation for the adult tobacco consumer, although it remains a bit of a mixed bag. On balance, our view is that the adult tobacco consumer is feeling better about their economic situation and their economic future, and we expect some modest improvement in that over 2015."

Altria CEO Marty Barrington. Source: Altria

One thing that investors need to remember about Altria is that smokers have to be able to afford cigarettes in order to support their habit. When the economy was in recession back in 2008, Altria and other tobacco companies felt a lot of pressure as smokers downgraded to discount brands in an effort to economize where they could.

Now, though, economic conditions have improved, and that makes it easier for smokers to buy premium brands like Marlboro rather than settling for cheaper alternatives. If the recovery continues, it should enable Altria to keep demand high even if it keeps pushing prices upward to offset the impact of falling sales volumes.

"[Customers] have more choices today, and so there's some movement [among products] there, but these things best, I think, are evaluated over time. ... It speaks, I think, first to the wisdom of having a total tobacco platform. So as adult tobacco consumers move within these categories, Altria is well-positioned to offer them premium brands with great margin structure."

Across the industry, tobacco companies have worked at diversifying their product lines, incorporating smokeless tobacco and e-cigarettes into the mix. Altria's strategy has been to have market-leading products in all areas of interest to tobacco enthusiasts. By focusing on developing brand loyalty, Altria hopes that it can retain its strong margins and capture customers regardless of their particular product preferences.

"Historically, we have not called out gas prices as one of the principal drivers of consumer behavior, [but] the way that gasoline prices have gone down so precipitously has obviously had a bigger effect on the consumer. ... The C stores [are] seeing better traffic, and I don't think there's any question that it's contributing to consumers feeling better about their economic situation."

Falling gas prices have generally added to disposable income, which many consumer goods companies have seen help their overall results. But Altria's insight is that with many cigarette sales happening at gas station convenience stores, the tobacco industry is one of the most immediate beneficiaries of cheap gasoline. Whether that turns into a long-term trend remains to be seen, but for now, Altria is reaping the rewards from customers who have more cash in their pockets than they did before the plunge in gas prices.

MarkTen e-cigarettes have seen adoption soar lately. Source: Altria

"With respect to Nu Mark, our belief is that it is an interesting enough category for us to participate in and to aspire to have leadership in. That is leadership that will be achieved over the long-term and for the long-term, which is why we use these words about financially disciplined and over time. We want to participate there. We believe Nu Mark had a very good year."

It was not that long ago that Altria was an also-ran in the e-cigarette market, with competitors having jumped at the opportunity and gained a big lead in the space. But Nu Mark has pushed hard to catch up, and its MarkTen brand is now available in 130,000 retail locations across the nation. Combined with last year's acquisition of Green Smoke, Altria is becoming a bigger force in the vapor and tobacco alternative market, and that bodes well for serving customers of all sorts in the future.

"Marlboro is a fantastic product for adult smokers that comes with decades of leadership, with lots of innovation and with lots of offerings for people who are in the category, and it has consistently grown its share over decades. We are the stewards of this brand, and we pay a good deal of attention to Marlboro. That speaks both to the product's function and to its equity, and that's been Marlboro's story."

In many ways, Marlboro is Altria, at least in the sense of its being the company's most valuable brand asset. With so much tied to the iconic brand, Altria has to support Marlboro no matter what. It is good to see company management recognize this fact, and in fighting efforts to eliminate branding from cigarette packs, Altria is working to preserve Marlboro's value for years to come.

Altria Group relies on the continued efforts of its management to keep climbing, and so far, the company has done a good job of preserving the success story that has given investors such attractive returns over the years. Despite its challenges, Altria remains on course to keep delivering long-term success well into the future.

This $19 trillion industry could destroy the Internet

One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.

The article 5 Reasons Altria Group Inc Executives Are Optimistic About the Future originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MO

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More