Altria Group Inc. (MO) is a holding company that, through its subsidiaries, manufactures and sells cigarettes, machine-made large cigars and pipe tobacco, as well as moist smokeless tobacco products. The company also owns a winemaker, maintains a portfolio of finance assets primarily comprised of leveraged leases, and sells oral nicotine pouches. Popular brands owned by Altria include Marlboro, Parliament, Copenhagen, and IQOS.

Altria operates in a highly competitive market where brand recognition and loyalty are decisive factors motivating consumer decisions. Product quality, taste, price, and other factors also play significant roles in attracting and retaining customers. Major competitors include U.K.-based Imperial Brands PLC (IMB) and British American Tobacco PLC (BATS), Philip Morris International Inc. (PM), Vector Group Ltd. (VGR), and Japan-based Japan Tobacco Inc. (2914).

Key Takeaways

  • Altria produces cigarettes, cigars, pipe tobacco, smokeless tobacco, oral nicotine pouches, and wine. It also maintains a portfolio of finance assets.
  • The company's smokeable products segment generates the most revenue and profit.
  • Altria's 10-year vision includes transitioning consumers to its growing portfolio of FDA-authorized, non-combustible products.
  • Kathryn B. McQuade was recently elected as the company's chair of the board of directors.
  • Altria in late April acquired the remaining 20% global interest that it did not own in the on! nicotine pouch business, giving it full ownership.

Altria's Financials

Altria announced in late April financial results for Q1 of its 2021 fiscal year (FY), the three-month period ended March 31, 2021. The company reported net income of $1.4 billion, a year-over-year (YOY) decline of 8.3%. Quarterly revenue declined 5.1% compared to the year-ago quarter, falling to $6.0 billion.

The declines were a deviation from Altria's results in recent past quarters, as the company saw revenue rise 4.9% in Q4 FY 2020 and 3.9% in Q3 FY 2020. The company posted positive net earnings in the fourth quarter compared to a net loss in the fourth quarter a year ago, and its net loss in Q3 narrowed significantly from the net loss reported in Q3 FY 2019.

Altria's operating income, however, rose to $2.7 billion in Q1 FY 2021, up 15.2% compared to the same three-month period a year ago. That rise was primarily driven by lower cost of sales, which were down 26.0% YOY. The Q1 pace of growth in operating income outpaced the 6.3% and 7.3% rates of growth in Q4 and Q3 of FY 2020, respectively.

Altria's Business Segments

Altria operates its business through the following reportable segments: smokeable products; oral tobacco products; wine; and an "all other" category that includes financial services and the company's innovative products businesses. The company provides a breakdown of operating income and revenue for each of these segments. A deduction for amortization of intangibles and general corporate expenses needs to be made in order to reconcile the individual segment amounts for operating income with Altria's consolidated operating income.

Smokeable Products

Altria's smokeable products consist of combustible cigarettes, machine-made large cigars, and pipe tobacco. Philip Morris USA Inc. and John Middleton Co. are the main subsidiaries that comprise the smokeable product segment. Revenue for the segment fell 6.4% to $5.3 billion in Q1 FY 2021, comprising nearly 87% of companywide revenue. Operating income for the quarter was $2.4 billion, exhibiting no growth compared to the year-ago quarter. Operating income comprises about 85% of the total for the company.

Oral Tobacco Products

Altria's oral tobacco products consist of snus and other moist smokeless tobacco products made by U.S. Smokeless Tobacco Co. LLC, as well as oral nicotine pouches made by Helix Innovations LLC. The oral tobacco products segment generated $626 million in revenue in the first quarter, up 4.2% from the year-ago quarter. The segment accounts for about 10% of total revenue. Operating income fell 5.3% YOY to $392 million, comprising 14% of companywide operating income.

Wine

Altria's wine segment consists of wine produced and distributed by Ste. Michelle Wine Estates Ltd. Revenue for the segment rose 2.7% to $150 million in Q1 FY 2021, comprising more than 2% of companywide revenue. The segment posted operating income of $18 million, a significant turnaround from the operating loss of $379 million in the year-ago quarter. Operating income accounts for about 1% of the total.

All other

Altria's all other category is comprised of its financial services and innovative tobacco products businesses. It includes the company's heated tobacco business and the international, or rest-of-world, segment of Helix. The financial services business is run by Philip Morris Capital Corp., which maintains a portfolio of assets, most of which are leveraged leases. Altria said it expects to wind down its financial services business by the end of 2022. Revenue for the all other category rose 66.7% to $10 million in Q1 FY 2021, comprising a small fraction of total company revenue. The operating loss for the category widened to $14 million from $5 million in the year-ago quarter.

Altria's Recent Developments

On May 11, 2021, Altria announced that Kathryn B. McQuade had been elected as independent chair of the board of directors. McQuade has served as senior advisor, executive vice president, and chief financial officer (CFO) of Canadian Pacific Railway Ltd. (CP), and as executive vice president of planning and chief information officer (CIO) at Norfolk Southern Corp. (NSC). She replaces Thomas F. Farrell II, who passed away in April 2021.

On April 29, 2021, the company announced in its first quarter earnings press release that it had recently closed transactions to acquire the remaining 20% global interest in on! oral nicotine pouches, which are manufactured by Helix. Total transaction costs to acquire the remaining stake amounted to approximately $250 million. The retail share of on! in Altria's oral tobacco products segment during Q1 FY 2021 was 1.7%.