Altria Group Runs A Very High Margin Business

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Altria Group, Inc. or Altria (NYSE:MO) runs a very profitable business.

The company’s extraordinary profitability can be seen from the perspective of its margins.

In this article, we will look at Altria’s margins, including its gross profit margins, operating profit margin and net profit margin.

Additionally, we will also look at Altria’s product segments and find out the respective margins.

Through the breakdown of the margin, we can discover Altria’s most profitable product segment.

Let’s head out to the following topics!

Altria’s Gross Margin

Altria gross margin

Let’s first explore Altria’s gross margin or gross profit margin as shown in the chart above for the period from fiscal 2017 to 2021.

From the first look at the chart, you will notice that Altria’s gross margin has been north of 60%, indicating that the company runs a very high margin business.

Despite the exceptionally good profitability, Altria’s gross profit margin is still rising as seen in the chart above.

Since fiscal 2017, Altria’s gross profit margin has been growing and clocked at a whopping 66% as of fiscal 3Q 2021, a record high for the company.

Keep in mind that the gross margin takes into consideration only the costs of goods sold and there are many other expenses that the gross margin has not taken into account yet.

Let’s look at more.

Altria’s Operating Companies Income (OCI) Margin

Altria OCI margin

Altria’s OCI margin is almost similar to the operating profit margin except that the OCI excludes certain income and expense items which the company deems not related to the underlying business.

Nevertheless, the OCI margin has the same function as the operating margin which is meant to measure the operating strength of Altria.

All told, similar to the gross profit margin, Altria’s OCI margin also has been on a rise, reaching as much as 56% as of fiscal 3Q 2021 on a TTM basis, a new high for the company.

Over the years, Altria’s core operations have got more efficient and the improving operating efficiency has resulted in an increasing OCI margin which reached north of 50% in fiscal 2021.

In short, the rising OCI margin bodes well not only for the company but also for shareholders as it indicates growing profitability.

Altria’s Operating Margin

Altria operating margin

As discussed, the gross margin has only included the costs of goods sold while leaving out other expenses items such as research and development costs, marketing, administrative, etc.

Now, the operating margin is taking care of all of these expenses by including them during computation.

Keep in mind that the operating margin has not included taxes and interest expenses yet.

That said, Altria’s operating profit margin also has been growing and totaled 54% in fiscal 2021 3Q on a TTM basis, also a record high for the company since 2017.

Over the past 4 years, we can see that Altria’s operating margin has steadily gained strength and increased by nearly 6 percentage points to reach the 54% level.

The increasing operating profit margin means that the company has been increasingly efficient in its core operations.

An increasingly efficient business operation certainly churns out more profits and may possibly result in a higher stock price and dividend in the future.

Altria’s Net Margin

Altria net profit margin

Altria’s net profit margin takes care of all of the company’s costs and expenses, including income taxes and interest charges.

Additionally, the net margin also includes income and expense items from investments such as gains or losses from investments.

According to the chart, the trend of Altria’s net margin has been largely the opposite of what we have seen so far in the gross, OCI and operating margin.

That said, Altria’s net profit margin or net income margin has been on a decline since fiscal 2017.

In particular, Altria’s net margin had gone massively lower between 2017 and 2019 and plunged to as low as -6.5% in 4Q 2019.

The plunge in Altria’s net margin between 2017 and 2019 had been due to the investment loss in JUUL and Cronos.

However, Altria has managed to reverse the plummeting net margin since 2Q 2020.

As a result, Altria’s net margin turned positive in the 2nd half of 2020 and reached as much as 21% in fiscal 2021.

As of fiscal 2021 Q3, Altria’s net margin clocked at 13% which represents a drop of 8 percentage points from the prior quarter.

Again, the decline in Altria’s net profit margin in the latest quarter was largely due to an impairment charge related to investment in Anheuser-Busch InBev (ABI).

Keep in mind that Altria used to have a net profit margin that was north of 50% back in fiscal 2018.

Although Altria’s net margin managed to top 10% as of 2021 Q3, it was still far below its historical high of 50% reported in fiscal 2018.

Altria’s Product Segment Margins

Altria product segments

For your information, Altria has 3 major product segments, and they are:

Altria’s largest product segment is the smokeable or combustible product and it gets its revenue or sales from cigarettes and cigars.

Some of the famous brand names under the cigarette and cigar products are the popular Marlboro and Black & Mild.

The 2nd major product segment is Altria’s oral tobacco or non-combustible product segment and its revenue source comes from selling smokeless tobacco products.

The brand names under Altria’s oral tobacco product segment range from Copenhagen, Skoal, on!, Red Seal, and etc.

Altria’s smallest product segment is the wine category.

Ste. Michelle is the major brand name under Altria’s wine sector and it produces and markets premium wines sold under various labels, including Chateau Ste. Michelle, 14 Hands and Stag’s Leap Wine Cellars.

Altria’s Smokeable Products Margin

Altria smokeable product margin

According to the chart, Altria’s smokeable or combustible product margin or specifically, the adjusted OCI margin, has been on a rising trend since fiscal 2017.

As of fiscal 2021 Q3, Altria’s smokeable product adjusted OCI margin reached a whopping 57% on a TTM basis, a record high for the company.

Over the previous 4 years, Altria’s smokeable product adjusted OCI margin has increased by as much as 5 percentage points to reach its current level of 57% in the latest quarter.

Again, the OCI margin is meant to measure Altria’s operating strength, its smokeable product operations in specific.

All told, the increasing adjusted OCI margin seen in Altria’s smokeable product segment means only one thing, that Altria’s cigarettes and cigars have increasingly become more profitable.

Despite the declining Altria’s cigarette sales volume over the years, the firm still managed to squeeze more profit out of the declining volume, illustrating the exceptional strength of its operations as well as the moat of the products.

Altria’s Oral Tobacco Products Margin

Altria oral tobacco product margin

According to the chart above, Altria’s oral tobacco or non-combustible product margin is even higher at more than 70%.

Between fiscal 2017 and 2021, Altria has managed to grow its oral tobacco product segment margin from 68% reported in 4Q17 to a massive 72% reported in 4Q20.

As of fiscal 3Q 2021, Altria’s oral tobacco or non-combustible products segment margin clocked at 70%, down 2 percentage points from its historical high of 72%.

Again, the OCI margin is meant to measure the specific product segment operating strength.

In Altria’s case, the increasing OCI margin indicates an improving operating efficiency as well as the moat of its non-combustible product segment.

The high OCI margin in the oral tobacco product segment means that this product segment is a high-margin business and is highly profitable.

In short, Altria’s smokeless tobacco product segment has the highest OCI margin among all product segments, notably at over 70% in fiscal 2021.

Altria’s Wine Products Margin

Altria wine product margin

In contrast, Altria’s wine product margin, specifically its adjusted OCI margin, has been on a decline between fiscal 2017 and 2021.

As of 2021 3Q, Altria’s wine product margin reached 12%, one of the lowest figures ever reported in the last 4 years.

Between fiscal 2017 and 2021, Altria’s wine product margin has declined by nearly 10 percentage points, from more than 20% reported in 4Q17 to only 12% in 3Q21.

Altria’s wine product margin has already shown weaknesses even before the arrival of the COVID-19 pandemic.

What is worst is that the decline in Altria’s wine product margin does not seem like a one-time event but a secular slowdown of the business.

The COVID-19 outbreak has further worsened the wine business and pushed the margin to go even lower.

In short, Altria’s wine business is going downhill.

Summary

In conclusion, Altria runs an exceptionally profitable business.

Most of the company’s product segments except for the wine business have exceptionally high margins which range north of 50%.

In addition, on a consolidated basis, Altria recorded a gross profit margin that is north of 60% while operating margin came in at more than 50% as of fiscal 2021.

In fact, Altria’s gross and operating margins have soared to record highs as of 2021 3Q, largely unaffected by the adverse impact of the COVID-19 pandemic.

In terms of net profit margin, Altria would have achieved a record-high net profit margin as of fiscal 2021 if not for the impairment charges related to investments in Cronos, JUUL and ABI over the years.

When we looked at the breakdown of Altria’s products by segment, its non-combustible or oral tobacco products segment is the most profitable, reportedly having the highest operating company income (OCI) margin at more than 70% up until 2021 3Q.

Moreover, Altria has been able to maintain a growing OCI margin in the smokeable product segment despite the continuous decline of the cigarette volume.

All in all, Altria is an exceptional company.

References and Credits

1. All financial figures in this article were obtained and referenced from Altria’s quarterly and annual earnings reports which can be found in Altria Earnings Releases.

2. Featured images are used under Creative Common Licenses and are obtained from Elsa Olofsson and Patrick Harris.

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