It would be an understatement to say that Altria (NYSE:MO) is a cigarette company. For the past 5 years, Altria has been diversifying into other businesses such as alcohol and cannabis while aggressively consolidating its core tobacco businesses.
As of 2Q 2020, Altria holds several businesses that consist of the following subsidiaries:
- Philip Morris USA – the maker of Marlboro cigarettes
- U.S. Smokeless Tobacco Company – the maker of Copenhagen and Skoal
- John Middleton – the maker of Black & Mild cigars
- Helix Innovations – the maker of on! oral nicotine pouches
- Ste. Michelle Wine Estates – a collection of distinctive wine estates
Aside from the business holdings above, Altria also has strategic investments and agreements with other companies, including:
- 35% economic interest in JUUL Labs – U.S. leading e-vapor company
- 10.1% ownership in Anheuser-Busch InBev – the world’s largest brewer
- 45% ownership in Cronos Group – a leading global cannabinoid company
- Exclusive U.S. license to commercialize Philip Morris International’s IQOS product – the only heated tobacco product authorized by the US FDA
With a portfolio of businesses and investments that span across the tobacco, cannabis and alcohol industries, Altria is determined to transition the company from, perhaps, a cigarette player into a conglomerate of multiple businesses.
But just how successful has Altria been in its transition and possibly, the turnaround?
To figure this out, we will look into the company’s revenue growth for the last couple of years and also the revenue breakdown by segment to find out how each business unit has performed over the years.
Without any hesitation, let’s move on!
Altria’s Net Revenue (Quarterly)
Let’s first look at Altria’s quarterly revenues from 2017 to 2020 which are shown in the chart above.
From a quarterly perspective, Altria’s revenue has been mostly flat in the last 3 years, averaging around $6.5 billion and $5 billion for net revenues and revenues net of excise taxes, respectively.
In 2020 Q2, Altria earned a quarterly net revenue and revenue net of excise taxes of $6.4 billion and $5.1 billion, respectively.
Despite the challenges of the COVID-19 pandemic in 2020, Altria continued to execute efficiently, bringing the damages to the minimum.
While reported YoY growth rates stood at -3.8% and -2.5% respectively for net revenue and revenue net of excise taxes, the results were much better than expected, with revenue decline limited to low single-digit.
In short, Altria has been able to defy the disruption brought on by the COVID-19 outbreak, with businesses running relatively unscathed.
Altria’s Net Revenue (TTM)
From a trailing 12-months (TTM) perspective, Altria reported a growth in net revenue and revenue net of excise taxes.
As shown in the chart above, Altria’s revenue plots have been steadily trending upward since 2018, particularly the plot of revenue net of excise taxes.
On a year-on-year basis, Altria’s TTM net revenue was $25.6 billion in 2020 2Q compared to $25.2 billion reported in the same quarter a year ago, representing a YoY growth of roughly 1.6%.
Similarly, Altria’s TTM revenue net of excise taxes was $20.3 billion in 2Q 2020 compared to $19.7 billion achieved in the same quarter a year ago, representing a YoY growth of 3%, which is a much better result than that of net revenues.
Altria’s Revenue Breakdown by Segment
Altria’s revenue segments are broken down into 3 reportable units as shown in the chart above.
The revenue breakdown consists of (1) smokeable products, (2)oral tobacco products and, (3) wine products.
Accordingly, Altria’s smokeable product revenue has been the largest revenue contributor in the last 3 years, making up nearly 90% of the company’s total sales.
However, the contribution from this segment of revenue has gradually dwindled, as reflected by the declining percentage which totaled 87.6% in Q2 2020 compared to 88.5% 3 years ago.
On the contrary, the oral tobacco product revenue percentage has increased to 9.7% as of 2Q 2020, compared to 8.4% 3 years ago.
The wine product revenue percentage has decreased slightly in the last 3 years.
From the analysis, Altria’s smokeable products business, which is mainly made up of cigarettes and cigars, is still the most important revenue contributor to the company even though the percentage has been gradually declining since 2017.
Other than cigarettes and cigars, Altria also counts on revenue from oral tobacco products such as Copenhagen and Skoal as well as On! oral nicotine pouches.
While the oral tobacco product revenue made up only 10% of Altria’s total sales, the percentage has been steadily increasing in the last 3 years, pointing to the growth potential of this business segment.
Lastly, non-tobacco business such as the wine segment has actually performed worse in the last 3 years.
All in all, Altria is still pretty much a cigarette and cigar company, as reflected by the large propotion of the smokable product revenue contribution to total sales.
Altria’s Smokable Products Revenue (Quarterly)
As mentioned, Altria’s revenue breakdown includes smokable, oral tobacco and wine.
In this section, we will first look at the company’s smokable products segment.
Altria’s smokable products consist of combustible cigarettes manufactured and sold by Philips Moris USA and Nat Sherman.
Other than cigarettes, the smokable products business segment also earned a small portion of revenue from cigars manufactured and sold by Middleton and Nat Sherman.
As shown in the chart above, Altria’s smokable product revenue remained relatively flat over the last 3 years, with 2Q 2020 revenue YoY growth slightly in the red at -4.2% and -2.8% for net revenue and revenue net of excise taxes, respectively.
Altria recognized about $5.6 billion and $4.3 billion in net revenue and revenue net of excise taxes, respectively, in the smokable product category in 2Q 2020.
Altria’s Smokable Products Revenue (TTM)
The quarterly revenue plot for smokable products may not clearly indicate the trend. Therefore, I have created the trailing 12-month plot as shown in the chart above to smooth out the curves.
As shown, Altria’s smokable product revenue has actually trended upward in 2020 on a TTM basis, reaching $22.4 billion and $17.3 billion for net revenue and revenue net of excise taxes, respectively.
Particularly, the uptrend is clearly seen for revenues net of excise taxes in which the YoY growth rate stood at 3.4% and 6.1% in 2020 Q2 and Q1, respectively.
In fact, revenue produced by smokable products reached multiple new highs throughout 2020, illustrating the resilience of this product category in the age of the COVID-19.
Altria’s Oral Tobacco Products Revenue (Quarterly)
The oral tobacco product segment earned revenue from the sale of Copenhagen and Skoal as well as the On! oral nicotine pouches.
As shown in the chart above, the uptrend is even more obvious for revenue from the oral tobacco product segment.
Both net revenue and revenue net of excise taxes for oral tobacco products reached new highs in 2Q 2020 at $660 million and $626 million, respectively.
In fact, year on year growth rates for both revenues in the oral tobacco segment were nearly 10% in 2020 Q2, driven largely by higher pricing and higher shipment volume, according to Altria in the 2Q 2020 earnings presentation.
Altria’s Oral Tobacco Products Revenue (TTM)
The chart above tells the whole story.
TTM revenues in the oral tobacco products category have continuously reached new highs in almost every single quarter in the last 3 years.
As of Q2 2020, Altria’s oral tobacco products revenue reached $2.5 billion and $2.4 billion, respectively, for net revenue and revenue net of excise taxes, representing a YoY growth rate of at least 8%.
Altria’s Wine Products Revenue (Quarterly)
In terms of wine product revenue, this segment of revenue has gone the opposite and declined substantially over the last 3 years.
As of 2020 2Q, Altria’s revenue from wine products stood at an all-time low at only $131 million and $126 million for net revenue and revenue net of excise taxes, respectively.
According to Altria 2Q 2020 earnings releases report, Ste. Michelle wine estates have been severely impacted by the COVID-19 pandemic, including lower on-premise and direct-to-consumer sales.
As a result, year over year sales growth has declined by more than 20% for net revenue and revenue net of excise taxes in the wine category in 2Q 2020.
Altria’s Wine Products Revenue (TTM)
In terms of trailing 12-months (TTM) revenue, both net revenue and revenue net of excise taxes have gone to an all-time low at $650 million and $630 million, respectively, in 2Q 2020.
The decline in revenue in the wine category was mainly driven by shipment volume which has decreased more than 20% to only 1.6 million cases.
In summary, Altria’s total revenue has declined on a quarterly basis but has slightly increased on a TTM basis.
In terms of revenue breakdown, both smokable and oral tobacco business units have reported an increase in sales, particularly the oral tobacco product category.
In contrast, the wine segment has been significantly impacted by the COVID-19, driving revenue down by more than 20% year on year.
While overall revenue has lowered slightly, the smokable and oral tobacco segments showed resilience and even thrived during the age of the COVID-19.
Additionally, Altri may have tried to diversify into other businesses, but the revenue from cigarettes and cigars still made up nearly 90% of the company’s sales in 2020.
In short, Altria is still literally a cigarettes and cigars company as of 2020 Q2.
References and Credits
1. All financial figures in this article were obtained and referenced from annual and quarterly filings available in Altria Investors Relation.
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