The company’s shares are down 2% year to date…
On Tuesday, Altria shares fell after the company released its second-quarter earnings report. The company’s shares did rebound slightly by Thursday, though they’re still down 17% from a year earlier.
Altria’s adjusted earnings were about what investors were expecting, but the company warned that slowing cigarette sales will affect future earnings. The company reported earnings of $1.10 per share, which met previous estimates.
Sales rose to $5.19 billion, beating estimates of $5.09 billion. And Marlboro, Altria’s leading cigarette brand, accounted for more than 40% of the global market share.
Headwinds That Could Affect Altria’s Shares
Altria’s shares may seem cheap, but that doesn’t necessarily mean it’s time to invest in the company. Here are three headwinds the company has to deal with going forward.
Declining cigarette sales in the U.S.
Cigarette sales have been declining for a long time, but recently, they seem to be declining faster than usual. In the U.S., 18 states raised the smoking age from 18 to 21. And some lawmakers have proposed raising the age when consumers can start buying tobacco products.
As a result, Altria expects that domestic cigarette sales will fall by 4% to 6% through 2023. This is down from its previous estimate of 3.5% to 5%.
Lower demand for smokeless products
The company has seen declining interest in its smokeless tobacco products, like snus and snuff. Altria said this was mostly due to a consumer shift to e-cigarettes and nicotine pouches.
The company is struggling to expand beyond tobacco products
This biggest problem Altria faces is that it’s struggling to expand its business beyond tobacco products. The company did invest in the Canadian cannabis company Cronos.
And Altria invested in Juul, a leading e-cigarette maker. Though it still has to clear this investment with antitrust regulators. And Juul is under scrutiny for supposedly marketing its e-cigarettes to teenagers.
The company also has a wine business called Ste. Michelle, but this is a much harder industry to do well in. The company’s shipments rose during the previous quarter, but its revenue fell due to tight competition.
Overall, the company hasn’t seen any real momentum with most of these initiatives. And its core business continues to shrink, begging the question of whether Altria is a good investment long-term.
