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    MO
    Earnings call· Dec 2024(Q4 FY24)

    ALTRIA GROUP Q4 FY24 earnings call MO

    Jan 30, 2025 Source

    Executive summary

    Altria Q4 FY24 — Smoke-Free Transition Challenges Amidst Strong Financials

    Altria delivered solid financial results in Q4 FY24, driven by core tobacco profitability and significant shareholder returns. However, the rapid growth of the illicit e-vapor market and an adverse ITC decision for NJOY ACE are challenging the company's smoke-free transition goals, prompting a reassessment of NJOY targets and highlighting regulatory enforcement issues. Management emphasizes the need for effective FDA authorization and enforcement to foster a legitimate harm reduction market.

    Highlights

    5

    • Adjusted diluted EPS grew by 3.4% for the full year 2024.

    • Returned over $10.2 billion to shareholders through dividends and share repurchases in 2024.

    • NJOY consumables shipment volume grew by over 15% to 12.8 million units in Q4 FY24.

    • on! reported shipment volume grew by over 44% year-over-year to nearly 44 million cans in Q4 FY24.

    • Helix (on! subsidiary) achieved profitability in Q4 FY24, ahead of its 2025 goal.

    Concerns

    5

    • The illicit e-vapor market grew by approximately 30% in 2024 and represents over 60% of the category.

    • Altria's 2028 smoke-free volume and revenue goals and NJOY's financial targets are compromised due to the illicit market.

    • The ITC issued a final determination against NJOY ACE, barring its importation and sale, currently under review.

    • Marlboro retail share of the cigarette category declined 1 share point in Q4 FY24.

    • Cumulative impact of inflation continues to pressure adult tobacco consumers, leading to downtrading.

    Guidance & targets

    4
    CategoryTargetConfidence
    Adjusted diluted EPS growth
    2% to 5%
    high materiality
    High
    Helix profitability
    profitable
    medium materiality
    High
    Share repurchase program
    $1 billion
    high materiality
    High
    Ploom PMTA and MRTPA submission
    combined submission
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Smokeable Products
    The segment delivered solid financial performance, maximizing profitability while balancing investments in Marlboro and funding smoke-free growth. Adjusted OCI margins expanded for both the quarter and full year, supported by strong net price realization. Domestic cigarette volumes declined, but Marlboro maintained and grew its share within the highly profitable premium segment.
    Adjusted OCI growth Q4: 5.5%Adjusted OCI growth FY: 2%Adjusted OCI margins FY: 61.6%Domestic cigarette volumes reported Q4: -8.8%Domestic cigarette volumes reported FY: -10.2%Domestic cigarette volumes adjusted Q4: -11%Domestic cigarette volumes adjusted FY: -11%Marlboro retail share of cigarette category Q4: -1 share pointMarlboro retail share of cigarette category sequential Q4: -0.3 share pointsMarlboro share of premium Q4: 59.4%Marlboro share of premium YoY Q4: +0.1 share pointMarlboro share of premium sequential Q4: +0.1 share pointMarlboro share of premium FY: 59.3%Marlboro share of premium YoY FY: +0.4 share pointsTotal discount segment share Q4: +1.7 share pointsTotal discount segment share FY: +1.3 share pointsMiddleton cigars shipment volume Q4: +2.9%
    		———61.2%
    Oral Tobacco Products
    The segment reported strong results, with significant growth in adjusted OCI and margin expansion. on! continued to perform well, growing shipment volume and retail share, contributing to Helix achieving profitability ahead of schedule. Declines in MST brands partially offset on! gains, leading to a slight decrease in total segment reported shipment volume.
    Adjusted OCI growth Q4: 13%Adjusted OCI growth FY: 5.2%Adjusted OCI margins FY: 67.8%Adjusted OCI margins YoY Q4: +6.4 percentage pointsAdjusted OCI margins YoY FY: +0.4 percentage pointsTotal segment reported shipment volume Q4: -0.4%Total segment reported shipment volume FY: -1%Adjusted segment volumes Q4: essentially unchangedAdjusted segment volumes FY: -2%on! shipment volume YoY Q4: +44%on! shipment volume Q4: 44 million canson! retail share of oral tobacco category YoY Q4: +2 share pointson! retail share of oral tobacco category Q4: 8.9%on! retail share of oral tobacco category sequential Q4: unchangedOral nicotine pouches share of category YoY Q4: +9.6 share pointsOral nicotine pouches share of category Q4: >45%Oral tobacco industry volume last 6 months: estimated +8%Oral tobacco products segment retail share Q4: -3.1 percentage points
    		———69.5%

    Operational metrics

    9
    Adjusted diluted EPS growth
    3.4%YoY
    FY24

    Represents the full year growth rate.

    Total cash returns to shareholders
    $10.2 billion
    FY24

    Combined amount for dividends and share repurchases.

    Dividends paid
    $6.8 billion
    FY24

    Amount of dividends paid during the full year.

    Dividend increase
    4.1%
    August

    Board raised dividend by 4.1% in August.

    Share repurchase program completed
    73.5 million shares
    FY24

    Completed previously authorized share repurchase program.

    Total debt-to-EBITDA
    2.1x
    as of Dec 31

    In line with target.

    ABI adjusted equity earnings
    $159 million-8.1% vs prior year
    Q4 FY24

    Reflects impact of lower ownership interest due to partial sale of ABI investment last year.

    NJOY premium position at retail
    >80%
    2024

    Secured in contracted stores through NJOY's first trade program.

    on! premium fixture position
    nearly 80%
    2024

    Created through a new trade program for on! volume.

    Industry KPIs

    11
    MetricValueDetails
    Net price realization11.3%%
    Cigarette category share59.4%%
    Cigarette shipment volume-8.8%%
    Illicit trade enforcement>60%%
    Smoke free market footprint>100,000 storesstores
    Smoke free consumer user count20 millionvapers
    Productivity cost savings program—
    Regulatory authorization pipelinemarketing granted orders
    Smoke free revenue and profitabilityprofitable
    Smoke free reduced risk shipment volumes12.8 million unitsunits
    Nicotine pouch oral tobacco category dynamics9.6 share pointsshare points

    Product announcements

    2
    ProductTypeDetails
    on! PLUS new flavorslaunch
    SWIClaunch

    Deals & partnerships

    1
    JTHorizon joint venture for heated tobacco stick products

    Horizon joint venture with JT to bring heated tobacco stick products (Ploom) to the U.S.

    Capital programs

    1
    Share Repurchase Programannounced$1 billion
    Start: Q1 FY25

    New $1 billion share repurchase program authorized by the Board, expected to be completed by the end of 2025.

    Risks & headwinds

    6
    Illicit e-vapor market2024 and ongoing

    Grew ~30% in 2024; represents >60% of the e-vapor category; 40% of disposable vaper growth from no prior cigarette usage

    Mitigation: Advocating for increased enforcement by federal and state agencies; reassessing 2028 smoke-free goals and NJOY targets.

    ITC decision against NJOY ACEImmediate, under 60-day review

    Barring importation and sale of ACE

    Mitigation: Disagrees with decision, believes JUUL's patents are invalid; working on product solutions to address patents; decision under review by U.S. Trade Representative.

    Cumulative impact of inflation on consumersOngoing into 2025

    Affecting consumers' discretionary income, leading to downtrading

    Mitigation: Monitoring economic trends; applying revenue growth management tools and promotional resources efficiently.

    Regulatory system dysfunctionOngoing

    FDA not authorizing enough smoke-free products; lack of enforcement against illicit actors

    Mitigation: Advocating for FDA to authorize more PMTAs and partner with federal agencies for enforcement; hoping new administration will restore FDA's intended function.

    Cigarette volume declineOngoing

    Domestic cigarette volumes declined 8.8% (Q4 reported), 10.2% (FY reported); estimated 11% adjusted decline for Q4 and FY

    Mitigation: Maximizing profitability of smokeable segment; balancing investments in Marlboro; disciplined resource allocation.

    Marlboro retail share declineQ4 FY24

    Declined 1 share point in Q4

    Mitigation: Applying tools to retain Marlboro consumers; focusing on premium segment where Marlboro expanded share.

    What to watch in Q1 FY25

    5

    NJOY ACE ITC decision review

    next quarter
    CurrentITC decision issued barring importation and sale, under 60-day review by U.S. Trade Representative
    TargetDecision rejected or alternative product solution confirmed

    Why it matters

    Determines the future availability of FDA-authorized NJOY ACE products and impacts Altria's e-vapor strategy.

    The ITC's decision is currently under a 60-day review period by the Office of the U.S. Trade Representative, which could reject the ITC's decision.

    Q&A highlights

    6

    Can you discuss the phasing of EPS growth for 2025, considering the Q1 shipping day impact? Also, elaborate on consumer trends, particularly the impact of cumulative inflation and mix shift due to alternatives.

    Management does not guide quarterly but noted no major distortions for 2025 EPS phasing compared to 2024, aside from one less shipping day in Q1. They reiterated that cumulative inflation continues to pressure consumers, leading to downtrading, and that the illicit e-vapor market is also impacting cigarette volumes.

    “We do see the cumulative impact really affecting our consumers. And you can see it outside of the tobacco industry. You can see it in credit card, late payments, things of that nature and the amount of credit card that the consumers are carrying.”

    asked by Matt Smith · answered by William Gifford

    2 min read6 chapters

    Detailed Narrative

    01

    Illicit E-Vapor Market and Reassessment of Goals

    The illicit e-vapor market grew by approximately 30% in 2024, with illicit products representing over 60% of the category. This surge, driven by disposable vapers, has led Altria to reassess its 2028 smoke-free volume and revenue goals and NJOY's specific financial targets, as the market dynamic compromises their ability to achieve them. Management is looking for material progress in enforcement, such as a decline in illicit product growth and increased litigation against bad actors, before providing updates.

    02

    NJOY Performance and ITC Decision Impact

    NJOY demonstrated encouraging performance, expanding ACE distribution to over 100,000 stores and growing consumables shipment volume by over 15% to 12.8 million units in Q4 FY24. However, the U.S. International Trade Commission (ITC) issued a final determination agreeing with JUUL's patent claims, barring the importation and sale of ACE. This decision is under a 60-day review, and Altria is developing product solutions to address the patents, believing the decision undermines public health by limiting FDA-authorized choices.

    03

    on! Nicotine Pouch Growth and Profitability

    The on! nicotine pouch brand continued its strong growth, with reported shipment volume increasing by over 44% year-over-year to nearly 44 million cans in Q4 FY24. Its retail share of the oral tobacco category grew by 2 share points year-over-year to 8.9%. Helix, the subsidiary managing on!, achieved profitability in Q4 FY24, ahead of its 2025 goal, and is anticipated to be profitable for the full year 2025, driven by strategic investments and consumer loyalty.

    04

    Smokeable Products Segment Maximizing Profitability

    The smokeable products segment delivered solid financial performance, with adjusted operating company's income (OCI) growing 5.5% in Q4 and 2% for the full year. Adjusted OCI margins expanded to 61.2% in Q4 and 61.6% for the full year, supported by robust net price realization of 11.3% in Q4. Domestic cigarette volumes declined an estimated 11% (adjusted) for both Q4 and FY24, while Marlboro's share of the premium segment expanded to 59.4% in Q4.

    05

    Regulatory Environment and Advocacy for Harm Reduction

    Altria views the U.S. regulatory structure as 'broken,' with the FDA not authorizing enough smoke-free products and failing to hold illicit market actors accountable. The company advocates for the FDA to authorize more PMTAs to establish a legal market of alternatives and to partner with federal agencies to prevent illicit products. They believe a functioning regulatory system is crucial for realizing the potential of tobacco harm reduction.

    06

    Heated Tobacco and International Expansion

    Altria is advancing its heated tobacco portfolio, with a combined PMTA and MRTPA submission for Ploom (via the Horizon joint venture with JT) expected in midyear 2025. A small-scale test launch of SWIC, a heated tobacco capsule product, commenced in Great Britain in December. Internationally, on! PLUS is competing in Sweden and the UK, with new flavors being introduced, and is awaiting U.S. authorization.

    AI-generated summary of the company’s earnings call. Not investment advice.