Shares of Altria Group are on the rise following the release of their fourth-quarter earnings report. The maker of Marlboro cigarettes revealed adjusted earnings of $1.18 per share, in line with Wall Street’s expectations and consistent with the same period last year. However, the company’s sales of $5.98 billion surpassed estimates of $5.1 billion, despite experiencing a 2.2% decline from the previous year. This decrease was largely attributed to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the oral tobacco products segment.
CEO Billy Gifford expressed optimism about the quarterly results and outlined the company’s plans for the future. Gifford stated, “Our plans for 2024 include a continuation of our strategy to balance earnings growth and shareholder returns with strategic investments toward our Vision.” He also projected that Altria would achieve adjusted diluted earnings per share between $5.00 and $5.15 by the end of 2024, representing a growth rate of 1% to 4% from a base of $4.95 in 2023. This outlook slightly exceeded analysts’ expectation of $5.07 per share for the full year.
Additionally, Altria has maintained its reputation as a reliable dividend payer. The company raised its dividend by 4.3% in August, marking the 58th increase in the past 54 years. During the fourth quarter alone, Altria paid dividends amounting to $1.7 billion, with a total of $6.8 billion paid out in 2023.
Following the release of these positive results, Altria stock rose by 1.3% to $40.63 in premarket trading on Thursday, outperforming S&P 500 futures which were up 0.5%. Despite a 15% decline over the past year, Altria remains a strong player in the tobacco industry.
Tobacco Sector Faces Challenges
The tobacco sector has experienced a flurry of activity in recent months. British American Tobacco (BAT), known for cigarette brands like Lucky Strike and Dunhill, made headlines with a significant $32 billion write-down of its cigarette brands in December. This announcement not only affected BAT’s stock price but also had an impact on its American counterparts, such as Altria and Philip Morris.
Altria, in particular, has faced its fair share of challenges in the transition from traditional combustible cigarettes to smokeless products. Its e-cigarette subsidiary, NJOY, took legal action against several e-vapor manufacturers in October. NJOY alleged that these manufacturers’ products violated state and local bans on flavored e-cigarettes, creating unfair competition.
Despite these hurdles, Wall Street analysts remain optimistic about Altria’s prospects. Although the lack of growth has kept the company’s shares range-bound over the past 18 months, analysts believe there is potential for an upward trajectory. The average target price for Altria’s stock is $47, representing an 18% increase from its current level.
Altria’s journey into the e-vaping market began with its 2018 acquisition of a 35% share in JUUL Labs. However, JUUL has encountered legal challenges due to its alleged aggressive marketing to teens. As a result, Altria exchanged its stake in JUUL for a nonexclusive global license to some of the startup’s heated-tobacco intellectual property.
In an effort to develop its own smokeless products, Altria purchased NJOY, which had obtained clearance from federal regulators. This acquisition allows Altria to expand its offerings in the e-cigarette market.
It is clear that the tobacco sector is undergoing a significant transformation. As companies shift their focus from traditional cigarettes to smokeless alternatives, they face various obstacles. However, despite these challenges, Altria’s stock still presents a promising investment opportunity for those willing to take the long view.