Who doesn’t love a refreshing cigarette? The mild satisfaction, the rich smooth flavor. So what if they come with the risk of emphysema and lung cancer? The tradeoff is worth it to tens of millions of smokers who patronize Altria Group (MO) and enjoy its variety of brands every day.

Key Takeaways

  • Revenue at Altria has been fairly steady at about $25 billion annually.
  • About 88% of revenue comes from cigarettes.
  • Its Marlboro brand of cigarettes has nearly 43% share of the retail market. Combined with other brands, nearly 50% of cigarettes sold in the U.S. are made by Altria.
  • About 13.7% of adults in the U.S. smoke, compared to 42.4% in 1965.

Well-Known Brands

Altria is the company formerly known as Phillip Morris Companies. It changed its name in 2003 to disassociate itself from cigarettes and improve its corporate image, though that effort ultimately proved futile.

Today, Altria runs or owns stakes in some of the world's largest tobacco brands. Its wholly-owned subsidiaries include U.S. Smokeless Tobacco and John Middleton, which specializes in cigars and pipes. It owns 80% of Helix Innovations, which makes oral nicotine pouches, and 35% of JUUL Labs, a maker of e-vaping products. Altria also owns 10.1% of Belgian beer company Anheuser-Busch InBev (ABI) and 100% of Ste. Michelle Wine Estates. If it can compromise your liver, your brain cells, or your respiratory system, chances are Altria has a stake in it.

About 88% of revenue still comes from good old-fashioned coffin nails. Altria's most important subsidiary is Philip Morris USA, the nation's dominant cigarette maker. Note: Philip Morris USA nor Altria have any connection to Philip Morris International (PM), which was spun off in 2008 to sell cigarettes outside the United States (and avoid domestic litigation).

Philip Morris USA makes Marlboro, the nation's best-selling cigarettes. Its brand recognition is so dominant that Marlboro has nearly a 43% retail market share in the U.S. This for a product that's easy to duplicate by the billions. Add a few more percentage points from other brands (such as Chesterfield, Virginia Slims, Basic, Parliament), and it turns out that nearly 50% of cigarettes sold in the U.S. are made by Altria.

Consistent Revenue

As a nation, our lungs are as pink as they've ever been. About 13.7% of adults in the U.S. smoke, compared to 42.4% in 1965. By rights, Altria should be taking in less money as the company's users dwindle and die off. Yet its revenue numbers are consistent from year to year.

Altria net revenue (in billions)
  2019   2018   2017   2016   2015
 25.11  25.36  25.57  25.74  25.43

Source: Altria.

The is because cigarettes are among the least price-elastic goods in existence, meaning that as they get more expensive, the quantity sold doesn't drop by as much as the price increases. People who want their fix, want their fix. High prices haven't risen enough to change behavior on a large scale. And rather than run the risk of spending less on smuggled cigarettes instead, law-abiding smokers will continue to pay through the nose. Altria sold about 101.8 billion cigarettes in the U.S. in 2019.

No legal product is as regulated as the cigarette. And with good reason. Innocent bystanders cannot avoid its harmful second-hand smoke. Its users court fatal diseases with every inhalation. But as economic entities, they are stupendously profitable. A cigarette costs pennies to make. Yet a pack of 20 can sell for more than $10 in high-tax states such as New York. Granted, federal and state excise taxes account for 44.3% of the retail price of cigarettes on average. But what remains is a markup that other industries can only envy.

The Bottom Line

Altria is a monument to human contrariety. Its customers willingly and happily purchase the tools of their illness and demise. Still, one can only sit back and marvel at Altria's proven ability to offer welcome returns to its shareholders, year in and year out. For investors more interested in returns than in public health, Altria remains one of the most attractive buying opportunities on Wall Street.