A tobacco giant has just gone through a series of unfortunate events.
Altria finds itself in a position where its traditional cigarette business has been more successful than its newer tobacco products.
Tobacco company Altria fell short of analysts' revenue predictions for the second quarter, but exceeded profit expectations. Its investment in e-cigarette manufacturer Juul Labs was dealt a major blow by the US Food and Drug Administration, which ordered the removal of its products from store shelves.
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Meanwhile, the US International Trade Commission has ruled that the import of IQOS heated tobacco devices by Philip Morris International into the country is prohibited. These devices are sold under Altria's Marlboro heated tobacco brand, resulting in a setback for Altria's harm reduction product development.
This is reflected in its stock price, which has dropped by one-fifth in the past three months. These stocks rose by 20% in June, but have fallen by nearly 7% overall this year. This has left investors questioning whether it is worthwhile to purchase Altria's stocks.
With traditional smoking rates in long-term decline, Altria is now the only major tobacco company on the market without an electronic cigarette. Let's take a look at whether adding this tobacco stock to your investment portfolio would result in losses.
Negatively impacted by the market.
Inflation also comes at a cost. While Altria's own expenses are rising as a result, its customers are also having to deal with skyrocketing food and energy costs, which reduces their limited disposable income and leads them to prioritize their investments.
In the first quarter, revenues decreased by 5.7% to $6.5 billion, although this figure includes the impact of Altria's sale of its wine business in October last year. After deducting consumption tax, revenues decreased by 4.3% to $5.4 billion.
However, adjusted profits increased by nearly 3%, to $1.26 per share, as Altria repurchased over 21 million shares of stock in the first six months of this year. Although net profits declined, this was largely due to Altria's investments in Juul, Anheuser-Busch InBev, and cannabis producer Cronos.
Despite performing well, the brewery had to completely write off its investments in Russia - the rise in foreign exchange rates temporarily lowered the fair value of these investments below their book value, resulting in non-cash impairment charges. Cronos also weighed on performance, causing a $120 million loss in equity investments for the quarter.
However, the true heavy blow was to Juul, as Altria's $13.4 billion investment in the company has now decreased in value by 35%. It has now been valued at $450 million due to the decreased likelihood of the FDA revoking its decision on Juul products (the agency did indeed pause the ban to review its decision). If the FDA upholds its ban, Juul is expected to declare bankruptcy.
Rising from the ashes.
This appears to be a gloomy landscape, but Altria also has many things to do.
The company can once again invest in its electronic cigarette business, as its investment in Juul prevented it from doing so unless the transaction value decreased by 90% or more. With experience in such products through its previously shelved MarkTen brand, it can relaunch these products or even acquire existing ones.
Altria has also invested in other smokeless tobacco options, including nasal snuff and nicotine pouches. It owns the Copenhagen and Skoal brands of nasal snuff, as well as the On! brand of nicotine pouches that was introduced a few years ago.
Tobacco products that are consumed orally make up nearly 47% of the market, with the 200-year-old Copenhagen brand holding a leading position with a 27.2% market share. The On! brand has grown to almost 5% of the market. Altria's Marlboro brand has been the market leader for the past 45 years, continuing to hold close to half of the traditional cigarette market.
Development opportunities
Altria is performing well financially, with its stock being very affordable, trading at only eight times next year's earnings. The stock is priced at around $44 per share, a departure from 2015 and the market crash earlier in the pandemic.
Altria's stock is an attractive buy with its rich 8.1% dividend, which has increased annually for over 50 years and earned it the title of dividend king.
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