Tony Gwynn's Death Could Snuff Out Smokeless Tobacco Growth: Altria and Reynolds American Shareholders Beware

Altria Group and Reynolds American could see a decline in smokeless tobacco growth after baseball star Tony Gwynn's death from oral cancer. Here's what smokeless tobacco means to Altria's and Reynolds American's bottom lines.

Jun 25, 2014 at 6:00PM

Sometimes it takes a celebrity death to call attention to a longtime problem. That's what's happening after the death of San Diego Padres Hall of Famer Tony Gwynn, who died Monday from oral cancer caused by chewing tobacco. The former outfielder was just one of over 40,000 Americans who will be diagnosed with oral cancer this year, most of which contract the disease from smokeless tobacco products. Gwynn's death is shining the spotlight on the dangers of smokeless tobacco.

The negative publicity is bad for Altria Group (NYSE:MO) and Reynolds American (NYSE:RAI), which supply nearly 90% of the U.S. smokeless tobacco market. Smokeless tobacco has been a growth category for the industry, growing 5% per year from 2011 to 2013. The growth is partially attributable to the clampdown on cigarettes, which is pushing more smokers into smokeless products as it becomes increasingly difficult to light up in public and more expensive to buy cigarettes. Smokeless products also generate higher profit margins than cigarettes. A renewed push to regulate smokeless tobacco could put a damper on Altria and Reynolds American's fastest-growing and most profitable tobacco products.

Death shines light on dangers of smokeless tobacco
In addition to restrictions on public smoking, which are driving many to switch to smokeless tobacco, the habit is promoted by baseball players through a longtime tradition of chewing tobacco on the field. Teenagers often consider sports figures as role models, which may account for the stable 5% smokeless tobacco usage rate among American teenagers.

The prevalence of smokeless tobacco on the baseball diamond helped make the habit commonplace, though now it may help to make the practice obsolete. Gwynn's death from oral cancer has focused the public's attention on the dangers of smokeless tobacco, with calls for a ban on on-field chewing springing up around the league.

In an interview with Bloomberg, Harvard School of Public Health professor Gregory Connolly said he wanted the government to enforce cigarette-style regulations on chewing tobacco, including large warning labels and a ban on flavored products. These restrictions, combined with negative publicity from Major League Baseball, could turn the growing category into a declining one.

Altria and Reynolds American smokeless products
Altria and Reynolds American dominate the U.S. smokeless tobacco market, making them the companies with the most to lose from tighter restrictions on the category. In 2013, Altria captured a 55% smokeless share and Reynolds American captured 33%.

Altria's leading brands include Copenhagen and Skoal, the No. 1 and No. 2 premium moist snuff brands. Reynolds American's value-priced snuff, GRIZZLY, is the best-selling moist snuff brand in America; GRIZZLY's 30.1% market share edged out Copenhagen (29.3%) and Skoal (21.4%) for the top spot in 2013. However, Altria owns six of the ten best-selling smokeless tobacco SKUs, giving it the largest exposure to the category.

Although Altria and Reynolds American supply the vast majority of the U.S. smokeless tobacco market, neither is dependent on the category. Smokeless tobacco accounts for about 12% of Altria's operating profit and 13% of Reynolds American's operating profit. However, the category has provided volume growth in an industry where revenue growth usually comes from price increases.

In 2013, smokeless shipments increased by mid-single-digits while smokeable shipments decreased by the same amount. Moreover, both Altria's and Reynolds American's smokeless profit grew faster than smokeable profit, reflecting more shipments and higher prices.

Mo Rai Volume Growth

Mai Rai Profit Growth

Data source: Altria and Reynolds American public filings

Bottom line
Tony Gwynn's death from oral cancer could lead to tighter restrictions on smokeless products. Although Altria and Reynolds American derive less than 15% of operating profit from the category, smokeless tobacco has provided easy growth in an industry where growth is hard to come by. If regulators indicate that cigarette-style warnings and restrictions will be placed on smokeless tobacco products, investors may want to lower their growth expectations for Altria and Reynolds American.

Attention dividend investors: Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers