Altria (MO): A look at the tobacco giant’s efforts in building a smoke-free portfolio

Shares of Altria Group Inc. (NYSE: MO) stayed in red on Monday. The stock has gained 7% over the past three months. The difficult macroeconomic environment which has impacted consumers’ discretionary incomes took a toll on Altria as well, causing a drop in volumes and revenues during its most recent quarter. As headwinds increase in the cigarette space, the company is working on moving towards a smoke-free future.

Heated tobacco

Altria sees significant opportunity in the heated tobacco category in the US. As part of its efforts to expand in this space, the company entered into a partnership with international tobacco company JT Group for the development and global commercialization of smoke-free products.

Under this partnership, the companies have created Horizon Innovations, a joint venture between Altria and JT for the commercialization of heated tobacco stick (HTS) products in the US. JT’s subsidiary Japan Tobacco International (JTI) will supply Ploom heated tobacco stick devices and PM USA will manufacture mobile HTS consumables for US commercialization.

JT currently sells its Ploom HTS products in four countries. Last year, the company launched its latest HTS device Ploom X in Japan and since then, it has managed to double its share of the Japanese HTS segment. There are estimated to be over 1 million Ploom X consumers and Altria is working on bringing this product to the US.

Altria’s heated tobacco portfolio also includes heated tobacco capsule (HTC) products. The company believes these products can appeal to smokers who have not yet found a satisfactory alternative to cigarettes and these include those smokers who have tried and rejected e-vapor products. Altria expects to finalize the design of its first capsule product by the end of this year.

E-vapor

On its quarterly conference call, Altria stated that total estimated e-vapor volumes declined 4% in the third quarter compared to a year ago. The company also noted a reduction in JUUL purchases throughout the supply chain. A few months ago, Altria exercised its option to be released from its non-compete obligations related to its JUUL investment. Even though the company still holds its 35% economic stake in JUUL, it is working on building a portfolio of e-vapor products that will help smokers move away from cigarettes.

Oral tobacco

Altria remains encouraged by the growth of its oral tobacco products. During the third quarter, revenues from oral tobacco products grew 7% year-over-year while domestic shipment volume increased 1.3%. The company’s oral tobacco category grew 6.5 share points year-over-year and now represents around 23% of the overall oral tobacco category. Shipment volume for on! nicotine pouches increased nearly 70% to 21 million cans. Total US oral tobacco category share for on! grew to 5.2% in Q3. The company is working on strengthening on!’s position in the oral tobacco category.

Click here to read the full transcript of Altria’s Q3 2022 earnings conference call