Altria Group, Inc. MO is strategically managing a challenging market environment by balancing its traditional tobacco business with an ambitious shift toward smoke-free alternatives. While the company is facing pressure in its core Smokeable Products segment due to weakened volumes, its ongoing efforts to embrace a smoke-free future show promise. Investments in brands like NJOY and on! reflect Altria’s forward-thinking strategy, which could drive long-term growth. However, the rise of illegal disposable e-vapor products poses a significant threat to these efforts, potentially undermining progress in the smoke-free category.

Let’s delve deeper.

Altria’s Transition to Smoke-Free Products

A significant portion of Altria’s growth story lies in its shift toward reduced-risk products, such as e-vapor and heated tobacco alternatives. As consumers increasingly seek healthier options amid rising awareness of the risks associated with smoking, the company has made notable progress in expanding its smoke-free portfolio.

NJOY, a core part of Altria's transformation strategy, is solidifying its position in the competitive e-vapor market. In 2024, NJOY successfully expanded its product distribution to over 100,000 stores, securing a prominent retail position. During the fourth quarter, NJOY experienced significant 15% growth in consumable shipments. NJOY's retail share of consumables surged to 6.4% in the quarter, marking a 2.8-point year-over-year increase. The company, through its subsidiary Helix Innovations, holds full global ownership of on!, a widely embraced tobacco-derived nicotine pouch product. In the quarter, on! reported remarkable 44% growth in shipment volume, reaching nearly 44 million cans. The brand also saw strong retail performance, increasing its share of the oral tobacco category by two share points.

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MO Modernizing Operations With “Optimize & Accelerate”

Altria has unveiled a new initiative, Optimize & Accelerate, aimed at modernizing processes to drive faster progress toward its smoke-free vision. This initiative is designed to enhance organizational speed, efficiency and effectiveness by consolidating tasks, rationalizing and regulating processes, expanding the use of generative AI and automation and outsourcing certain transactional activities. The company had announced that it expects the initial phases of the initiative to yield cumulative cost savings of at least $600 million over five years.

Altria’s Challenges

The cigarette industry faced significant headwinds during fourth-quarter 2024, with shipment volumes under continued pressure. This decline is largely attributed to ongoing macroeconomic challenges and the rapid growth of illegal disposable e-vapor products. Adult smokers continue to experience economic strain due to the prolonged effects of inflation and constrained discretionary spending. The elevated growth of illicit e-vapor products, exacerbated by inadequate enforcement, has led to a higher-than-expected cross-category movement from cigarettes to these illegal alternatives. Consequently, Altria has been witnessing a decline in its Smokeable Product segment revenues for the past few quarters now.

Given the evolving market landscape, Altria continues assessing economic factors like inflation, ATC dynamics (such as purchasing patterns and the adoption of smoke-free products), illegal e-vapor enforcement and regulatory developments. The company’s push into the smoke-free category faces a growing obstacle as illicit flavored disposable e-vapor products are growing rapidly. These products undermine the company's efforts in the e-vapor segment, wherein NJOY's market share is growing but remains somewhat overshadowed by illicit products.

Wrapping Up

While Altria is making strategic strides toward a smoke-free future with investments in brands like NJOY and on!, it faces challenges from illegal disposable e-vapor products and ongoing market pressures. The company’s ability to navigate these hurdles effectively will determine its success in expanding its smoke-free portfolio and sustaining long-term growth. At present, MO carries a Zacks Rank #3 (Hold).

Altria’s shares have gained 5.7% in the past three months compared with the industry’s growth of 13.3%.

Top Three Picks

Pilgrim’s Pride PPC, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently sports a Zacks Rank of 1 (Strong Buy). PPC delivered a positive earnings surprise of 25.7% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate figure for Pilgrim’s Pride’s current financial-year earnings indicates a decline of 2.6% from the prior-year reported level.

Tyson Foods, Inc. TSN operates as a food company worldwide. It currently carries a Zacks Rank #2 (Buy). TSN delivered a trailing four-quarter earnings surprise of almost 52%, on average.

The Zacks Consensus Estimate for Tyson Foods’ current fiscal-year sales and earnings indicates growth of almost 0.9% and 23.6%, respectively, from the prior-year reported levels.

Utz Brands UTZ, which has a diverse portfolio of salty snacks, currently carries a Zacks Rank of 2. UTZ has a trailing four-quarter earnings surprise of 8.8%, on average.

The Zacks Consensus Estimate for Utz Brands’ current financial-year sales and earnings indicates growth of 1.2% and 10.4%, respectively, from the year-ago number.

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