Altria Revenue Breakdown, Profit And Margin By Segment

One of Altria’s brand names: Marlboro. Source: Flickr

It would be an understatement to say that Altria (NYSE:MO) is a cigarette company.

For years, Altria has been diversifying into different areas, including cannabis, while still aggressively strengthening its core tobacco businesses.

As of 4Q 2022, Altria holds several businesses that are made up 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

In addition to the business holdings above, Altria also has strategic investments and agreements with other companies, which are shown as follows:

• 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 smokeless products, Altria is determined to transition from, perhaps, a cigarette player into a conglomerate of multiple businesses.

In this article, we will look at Altria’s several revenue-related metrics, including the revenue net of excise taxes, revenue growth, projected and estimated revenue for fiscal 2023, as well as the revenue breakdown by segment and by product category.

Apart from the revenue-related metrics, we also explore Altria’s profitability and margin on a consolidated basis and by product segments.

Without any hesitation, let’s start with the following topics!

Altria’s Net Revenue

Altria revenue net of excise taxes

In fiscal 2022, Altria’s net revenue came in at $20.7 billion USD, which was slightly lower than that of fiscal 2021.

Since fiscal 2016, Altria’s revenue net of excise taxes has been on a steady rise.

Going into fiscal 2023, Altria’s revenue is estimated to come in at $21.5 billion, representing a year-on-year growth rate of about 4%.

This figure is calculated based on Altria’s guidance of between $4.98 and $5.13 USD in adjusted EPS for fiscal 2023.

The estimated EPS for 2023 represents a year-over-year growth rate of about 4.5% over 2022 on average.

Based on a 42% of adjusted net earnings margin and a growth rate of about 3.5% for Altria’s adjusted net earnings, the net revenue net of excise taxes for fiscal 2023 is projected to reach $21.5 billion USD.

Altria’s Profitability

Altria profitability

Altria is a profitable company as reflected in the growing adjusted net earnings and adjusted EPS.

As shown, Altria’s net earnings and EPS have been on a steady climb since 2016 and reached $8.7 billion and $4.84 USD per share, respectively, as of 2022.

Since 2016, Altria’s adjusted net earnings have been growing at an average growth rate of about 8% while that of the adjusted EPS is 7%.

Therefore, Altria has been able to grow its adjusted net earnings slightly faster than the respective adjusted EPS in the last 7 years.

For fiscal 2023, I estimated that Altria’s adjusted net earnings to come in at $9 billion which represents a year-on-year growth rate of about 3.5%.

Altria said that the outlook for 2023 adjusted EPS is 4.5% on average based on the Q4 2022 earnings release.

Historically, Altria’s adjusted EPS growth rate was about 1% higher than that of the adjusted net earnings.

Therefore, the growth rate for the adjusted net earnings is estimated to come in at 3.5% in 2023 which is about 1% lower than the growth rate of the adjusted EPS.

In short, Altria is a profitable company that produces roughly $9 billion in adjusted net earnings on an annual basis.

Altria’s Margins

Altria margins

Altria is not just a profitable company but an insanely profitable one.

As seen, Altria’s gross margin tops nearly 70% as of 2022 on a consolidated basis, a record figure in the last 7 years.

The good news is that Altria’s gross margin has been on a rise since 2016, which has been a result of the ability of the company to raise prices all these years.

Altria’s capability to raise prices illustrates the strong brand power and the huge moat of the company over the years.

Apart from the gross margin, Altria’s operating efficiency also has been on a steady climb, topping 59% and 58% for both OCI margin and operating income margin, respectively, as of 2022.

Therefore, Altria is a company that not only has the ability to increase prices but also operates efficiently.

In short, Altria runs a high-margin business.

Altria’s Revenue By Product Segment

Altria revenue by product segment

Altria’s revenue by product category can be divided into 3 segments, namely smokeable products, oral tobacco products, and wine products.

However, Altria divested its wine segment in 2021, and therefore, the revenue for wine products has come to nil as of 2022.

Altria’s smokable products segment, the largest among all segments, generates sales from combustible cigarettes manufactured and sold by Philips Morris USA and Nat Sherman.

Other than cigarettes, Altria also earns a part of its revenue from cigars manufactured and sold under Middleton and Nat Sherman.

As shown in the chart above, Altria’s biggest revenue source comes from the smokeable product segment, topping $18.2 billion in 2022.

Over the last 7 years, Altria’s smokeable product revenue has been on a steady rise and has grown by 10% or 1.6% on average per year since 2016.

On the other hand, the oral tobacco product segment is a much smaller business segment, and earned revenue from the sale of Copenhagen and Skoal as well as the On! oral nicotine pouches.

As shown in the chart above, Altria’s oral tobacco product segment generates much smaller sales, only about one-eighth of that of the smokeable product segment or $2.5 billion as of 2022.

However, this product segment has grown much faster than the smokeable product category.

Over the last 7 years, Altria’s oral tobacco product revenue has grown by 32% or 5% per year on average since 2016, which is considerably larger than the growth rate of the smokeable product category.

Altria’s Percentage Of Revenue By Product Segment

Altria percentage of revenue by product segment

From the perspective of percentage, Altria’s smokeable product revenue hit 88% in 2022, the highest figure ever reached since 2016.

This figure also has been on a steady rise and grew particularly fast in 2022 after the wine product segment was divested.

Similarly, Altria’s oral tobacco product revenue share also has been rising and hit 12% in 2022, the highest ratio ever reached since 2016.

From a comparison perspective, Altria’s oral tobacco product revenue share grew the most compared to that of smokeable product revenue share, notably by 2 percentage points since 2016.

As of 2022, Altria’s wine product revenue share plunged to 0%, due to the divestment which was completed in 2021 Q4.

Here is a quote extracted from Altria’s 4Q 2021 earnings release regarding the wine business divestment:

Altria Wine Product
On October 1, 2021, UST LLC sold its subsidiary, International Wine & Spirits Ltd., which included Ste. Michelle, to Sycamore Partners Management, L.P.

Therefore, Altria has completely exited the wine business since Q4 2021 by selling off the subsidiary.

As Altria has exited the wine business completely, its smokeable or combustible product segment forms an even bigger part of the company’s revenue source.

While the revenue share of the oral or smokeless tobacco product segment has grown much faster, it has only gained marginally in the last 7 years due to the size of its revenue figure.

Therefore, as of 2023, Altria is still pretty much a cigarette company.

Growth Rates By Product Segment

Altria growth rates by product segment

Altria’s revenue growth among the different product segments was the lowest in 2022 in the last 6 years.

As shown, Altria’s smokeable or combustible product revenue grew only marginally at 0.4% in 2022 compared to 1% and 6.5% reported in 2020 and 2021, respectively.

The revenue growth for oral tobacco products was even worse in 2022, coming off at -0.6% compared to a growth rate of 7.3% and 3% reported in 2020 and 2021, respectively.

On a consolidated basis, Altria’s revenue net of excise taxes declined by 2% in 2022 compared to a growth of 5.3% and 1.3% reported in 2020 and 2021, respectively.

Between 2017 and 2022, Altria had the best revenue growth in 2020, with all product segments growing in high single digits.

Since 2020 or in the post-pandemic periods, Altria’s growth rates for all revenue segments have significantly slowed, particularly in 2022.

Will Altria be able to reverse the slowing revenue growth in 2023?

Most likely based on the estimated revenue in 2023 and the outlook provided by Altria.

Altria’s Profitability By Product Segment

Altria profit by product segment

Among the product segments, Altria’s smokeable or combustible products have been the most profitable segment, with the adjusted OCI topping nearly $11 billion as of 2022.

The good news is that this figure has been on a rise since 2016 and was seen rising considerably in 2022 despite the slowing revenue growth in this product segment which we saw earlier.

For example, in fiscal 2022 alone, Altria’s smokeable product adjusted OCI grew by 3% from 2021 compared to the revenue growth rate of just 0.4% reported in the same fiscal year which we saw in earlier discussions.

Therefore, Altria still managed to grow its profitability in the smokeable product category despite the slowing revenue growth in this product segment.

On the other hand, Altria’s adjusted OCI in the oral tobacco product segment declined by 4% year-over-year in 2022 to $1.6 billion USD.

While revenue growth in the smokeless product category declined by only 0.6% in 2022 which we saw earlier, its adjusted OCI declined at a much worse growth rate at 4% year-on-year, illustrating a lower resilience in the oral tobacco product segment compared to the much stronger smokeable product category.

A similar downtrend is observed in 2021 in the oral tobacco product segment.

For example, revenue rose 3% in 2021 but the adjusted OCI declined by 1.6%.

Therefore, there seems to be a divergence between revenue and profitability in the oral tobacco product segment.

On a side note, Altria’s wine business profitability has been on a decline since 2016 and the adjusted OCI was seen dropping to only $73 million in 2021 before the subsidiary was sold.

Therefore, it is no surprise to see that Altria divested the wine business in 2021 because it makes only a little money in this product segment.

In short, Altria is still pretty much a cigarette company as of 2023 because a lion’s share of its profits still comes from the sales of combustible products, ie. cigarettes.

Altria’s Margin By Product Segment

Altria margin by product segment

While the smokeable or combustible product sector generates the biggest profit for Altria, it is not the case when it comes to margin.

As shown in the chart, the adjusted OCI margin for the smokeable product segment lags behind that of the oral tobacco product segment.

While the smokeable product margin has been steadily increasing and topped 59% as of 2022, it was still slightly lower than that of the oral tobacco product segment which came in at 66% during the same fiscal year, indicating the higher profitability nature of the oral tobacco products.

Nevertheless, a worrying trend appears in the oral tobacco product OCI margin.

For example, the adjusted OCI margin for the oral tobacco product segment started to decline after topping a massive 72% in 2020.

As of 2022, it reached only 66%, a record low since 2020.

On the flipped side, Altria’s combustible product OCI margin still managed to go higher despite the lowering revenue growth since 2020.

However, on a long-term basis, Altria’s combustible or smokeable product segment looks more resilient compared to the non-combustible or smokeless product segment.

As shown in the chart, the adjusted OCI margin of Altria’s smokeable products has grown by a massive 10 percentage points over the last 7 years while that of the oral tobacco products has only ticked 2 percentage points higher during the same period.

Again, Altria still depends very much on the smokeable product segment for growth and profits despite the tremendous efforts by the company to wean itself off combustible products.

On a side note, Altria’s wine product OCI margin came in at the lowest figure among all product categories and clocked at only 15% as of 2021.

As of 2022, Altria’s wine product OCI margin registered nil because of the divestment which was completed in Q4 2021.

Conclusion

In summary, Altria still counts on its smokeable or combustible products for growth and profit.

As seen, Altria’s smokeable or combustible product segment generates a lion’s share of the company’s revenue and profit.

Moreover, there is only noticeable progress by the company in the oral tobacco product segment while margins in this product segment have shrunk and profitability has declined in the post-pandemic periods.

The growth seen in the oral tobacco product revenue share was driven primarily by the collapse of the wine product segment.

In short, Altria is still pretty much a cigarette and cigar company as of 2023.

References and Credits

1. All financial figures in this article were obtained and referenced from Altria’s annual and quarterly reports which are available in Altria Investors Relation.

2. Featured images in this article are used under creative commons license and sourced from the following websites: Thomas Hawk and g0dd4mn[LZW].

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