Altria's Smokeable Segment Shrinks: Is it Time to Pivot Faster?

Yahoo

2 days ago

Altria Group, Inc. MO is facing growing pressure in its core smokeable products segment, with recent data highlighting a sharp decline in cigarette volumes. In first-quarter 2025, domestic cigarette shipment volumes dropped 13.7%, while net revenues from the smokeable segment fell 5.8% year over year to $4.62 billion. The top-line decline reflects the broader challenges plaguing the tobacco industry, including economic strain on adult tobacco consumers, a shift toward discount brands and the surging popularity of illicit e-vapor products.Inflationary pressures and stagnant wage growth continue to erode consumer purchasing power, driving low-income smokers toward cheaper alternatives. As a result, the discount cigarette segment gained 1.8 share points during the quarter, while Altria's flagship Marlboro brand saw a 1-point decline in retail share year over year. These volume pressures also contributed to a 5.7% drop in the company's total first-quarter revenues.Moreover, the proliferation of illegal disposable e-vapor products — now estimated to dominate over 60% of the e-vapor market — has accelerated cross-category migration, further eating into traditional cigarette demand. Despite Altria's pricing power and brand equity, these shifts raise fundamental concerns about the long-term viability of its smokeable portfolio.With regulatory enforcement lagging and consumer preferences shifting rapidly, the company may need to expedite its transition to smoke-free alternatives. While Altria has invested in platforms like NJOY and on!, the recent slump in smokeable sales suggests that pivoting faster could be essential to sustaining growth and investor confidence in the evolving nicotine market.
Philip Morris International Inc.'s PM cigarette segment is facing structural pressure as the global industry continues its slow decline. In first-quarter 2025, overall cigarette industry volumes shrank 1.3%, with growth limited to geographies where smoke-free products are either restricted or absent. Despite Philip Morris' strong pricing and resilient category share, it expects a low single-digit decline in combustible volumes for the full year. Philip Morris' gross profit margin for smoke-free products surpassed combustibles by over five percentage points, reflecting the growing importance of reduced-risk products (RRPs) like IQOS, ZYN and VEEV.British American Tobacco p.l.c. BTI continues to face pressure in its combustible business, with declining volumes weighing on revenues despite robust pricing, driven by a challenging market environment. The company also anticipates significant regulatory headwinds to persist, further impacting its combustibles performance. In response, British American Tobacco is accelerating its transformation toward RRPs. As part of its long-term strategy, British American Tobacco aims to reach 50 million RRP consumers by 2030 and generate 50% of total revenues from RRPs by 2035, highlighting its commitment to a smoke-free future and sustainable growth.
Shares of Altria have gained 12% year to date compared with the industry's growth of 38.3%.
Image Source: Zacks Investment Research
From a valuation standpoint, MO trades at a forward price-to-earnings ratio of 10.73X, below the industry's average of 15.47X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for MO's 2025 earnings implies year-over-year growth of 5.3%, whereas its 2026 earnings estimate suggests a year-over-year uptick of 3%.
Image Source: Zacks Investment Research
MO stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Altria Group, Inc. (MO) : Free Stock Analysis Report
Philip Morris International Inc. (PM) : Free Stock Analysis Report
British American Tobacco p.l.c. (BTI) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research