Altria: Cigarette Volume Fell 11% in Q1, But Dividend Yield Now 8%

Company Update (MO US) (Buy)

Highlights

• Cigarette volume declines have accelerated; Marlboro lost share

• But Reduced Risk Products are not to blame, for now

• EPS still grew 5.0% in Q1 and guided to grow 3-6% this year

• Shares have fallen 14% in the past year; P/E is less than 10x

• We still see a 38% upside (14.5% p.a.), albeit with risks. Buy

Introduction

Altria reported Q1 2023 results on Thursday (April 27). Cigarette volume fell by 11% year-on-year, after an 8% decline the year before. Volume declines have accelerated, and Marlboro is losing share. The blame lies mostly with high inflation; Reduced Risk Products do not seem a large headwind at present. California’s ban on menthol cigarettes likely had only a marginal impact.

Group net revenues fell despite a 6.8% rise in the average Marlboro pack price, but Operating Income and Adjusted EPS grew thanks to lower costs, higher interest income and buybacks. Management still expects Adjusted EPS to grow by 3-6% in 2023. However, pricing and costs may both become more difficul…