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Diversified Business To Help Altria In The Future

The FDA has made issuing an Advanced Notice of Proposed Rule Making (ANPRM) asking critical questions related to its pursuit of regulations to limit the nicotine content in "combustible cigarettes" to non-addictive levels a major policy goal for 2018 . Since Altria ( MO ) operates solely in the United States, the passing of such a regulation will considerably hamper the volume sales, and consequently, will have a negative impact on its earnings. However, Altria has a diversified business, including a wine segment and a 10% stake in Anheuser Busch. While the company still gets close to 90% of its revenues from its smokeable segment, there are a number of ways the company can mitigate its losses, and given the fact that it will take a while before such a regulation is even passed (if it does), the company has plenty of time to change its area of focus.

We have a $73 price estimate for Altria , which is slightly higher than the current market price.

1. Focus on E-Cigarettes & Chewable Tobacco

The FDA's announcement seems to be more focused on reducing the consumption of "combustible cigarettes." Hence, the other ways of consuming tobacco, such as through e-cigarettes and chewable tobacco could be a focus for Altria going forward. While these products provide nicotine as well, they may pose less of a harm to consumers given their non-combustible method of consumption. These are both markets in which Altria has a significant presence. Its smokeless products segment delivered a revenue increase of 4.2% in the latest reported quarter. The company's leading brands, Copenhagen and Skoal, each represent more than $1 billion in annual retail sales. In 2016, the company has stated that it had six of the top 10 SKUs (Stock Keeping Units) in the smokeless tobacco category. Moreover, in e-vapor, Nu Mark's MarkTen brand has continued to grow its volume and retail share. It is currently the number two e-vapor brand in the country, with a national retail market share of 13.5% in mainstream channels. While these segments contribute only a small proportion of Altria's earnings currently, a shift towards these products in the future could help make-up for the losses from cigarette sales. A higher sell-rate of these products could also help in improving the company's margins.

2. Potential Of iQOS

The FDA has begun its review of Philip Morris' modified risk tobacco product application for iQOS. Once iQOS gets the go ahead, Altria will get exclusive rights to sell these products in the US. Philip Morris is the first company to seek US approval to market a tobacco product as being less harmful than traditional cigarettes since the new laws were introduced. And hence, logically, if they are also the first company to receive approval from the FDA, they will hold a significant marketing advantage over other reduced risk tobacco products.

iQOS has shown significant growth in all markets it has been launched in till now. Japan is the only country in which the national expansion has occurred and the nation has boasted the strongest growth rates for iQOS among all nations. In the third quarter, it was noted that the product carried on with its strong sequential growth, with the brand closing out the quarter with a 13% share of the market.

See Our Complete Analysis For Altria

Have more questions? Have a look at the links below:

  • Why It Makes Sense For Altria To Bet On The E-Cigarette Market
  • California Tax Hike Drives Altria's Sales Fall
  • Altria's Stock Tanks On Latest Proposal By The FDA
  • Key Reasons Why We Are Bullish On Altria

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions in the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Altria .

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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.

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