5 Things Altria Group Inc. Management Wants You to Know

The tobacco giant is dealing with new competitive threats, but it still has high aspirations. Find out what top executives at Altria expect for the company's future.

Aug 29, 2014 at 6:24PM

Mo Products
Source: Altria Group.

Tobacco giant Altria Group (NYSE:MO) has wowed investors for decades with its strong share-price appreciation and plentiful dividend payments to shareholders. Yet even though the company has successfully fended off major threats to its existence throughout its history, Altria investors still worry about the rising tide of regulation and consumer-health attacks and their potential impact on the company and its stock. Altria executives, on the other hand, are confident that they can adapt and continue to succeed in growing their business over time. Let's take a look at some of the most interesting things those executives said during Altria's most recent conference call following the company's second-quarter earnings release.

"Our company's leading premium brands and the strength of our diverse business model continue to deliver value for shareholders." -- CEO Marty Barrington

Altria has always relied on its brand recognition, and its premium Marlboro brand continues to have enormous value both in the U.S. and abroad. In its most recent quarter, Marlboro captured a 44% share of the U.S. market, and former Altria subsidiary Philip Morris International (NYSE:PM) has seen similar market-share performance from Marlboro overseas. That strength played a big role in holding back competition.

Mo Barrington

Altria CEO Marty Barrington. Image source: Altria Group.

Yet Marlboro isn't the only premium brand driving positive results for Altria. In the smokeless tobacco realm, the combination of the well-known Skoal and Copenhagen brands gave Altria an even more commanding 51.1% market share. With a model that seeks out profits not just from cigarettes but from smokeless and innovative products like electronic cigarettes, Altria leaves no stone unturned in maximizing its opportunities.

"Nu Mark began the national expansion of MarkTen e-vapor products [and] achieved strong distribution in over 60,000 stores. These stores account for more than 780% of cigarette industry volume in the Western U.S. where MarkTen is distributed." -- Barrington

Altria was relatively late to respond to the rise in popularity of electronic cigarettes, letting Lorillard (NYSE:LO) and its blu eCigs brand capture a first-mover advantage. But Altria is wasting no time in trying to catch up, and the early success of its initiatives to boost consumer awareness of its MarkTen line of e-cigarettes has given the company positive momentum going forward.

Altria and MarkTen will still have to keep holding back competition in order to meet the goal of high market share. But in that light, the decision from Reynolds American (NYSE:RAI) to sell off the blu brand in its proposed merger with Lorillard is good news for Altria, and it could give the company a better chance of beating out Reynolds American's Vuse product and starting to build up the market share Altria will want.

Mo Altria Hq
Altria headquarters. Source: Altria.

"In the wine segment, operating company volume was up 12% in the second quarter." -- CFO Howard Willard

Many investors have no idea that Altria is involved in anything other than tobacco and related products. Yet Altria also is the parent company of Ste. Michelle Wine Estates, which includes popular brands like Columbia Crest and Chateau Ste. Michelle. With adjusted operating company income of just $118 million, Altria's wine segment isn't a huge portion of its overall business. But when you also take into account Altria's roughly 30% stake in beer manufacturer SABMiller, it's clear that the company recognizes the value of at least some diversification in its product mix. With trends favoring wine consumption, Altria could see the wine business grow more rapidly than the cigarette segment in the future.

"Since we put in the Marlboro architecture and in particular with the new platform of Marlboro Black, which has been quite successful, what you see is that Marlboro really has continued to perform very well." -- Barrington

One of the challenges that Altria faces is that as cigarette taxes go up, it becomes more difficult for many smokers to afford premium brands. Altria therefore has to focus on maximizing its marketing efforts to keep its customers loyal while also attracting smokers away from competing brands.

Mo Logo
Source: Altria Group.

Even as other manufacturers have targeted the discount end of the market, Altria has realized that to maintain its margins, it has to focus on building up the perceived value of Marlboro and other key brands. If regulatory efforts ever threaten to devalue the brand -- perhaps by introducing plain packaging rather than continuing to allow distinctive logos and images -- then Altria could see Marlboro's popularity suffer.

"At Altria, we're the market leader today, we would be a market leader after any transaction that has been proposed. We are really focused on maintaining our market leadership." -- Barrington

Much has been made about Reynolds American's proposed merger with Lorillard and the impact it could have on the domestic tobacco industry. Yet Altria executives refused to comment on the deal, and they don't believe that any consolidation in tobacco will hurt their leadership position. Altria investors should be pleased to see that the company isn't panicking, even though it's increasingly evident that Altria will have to keep working hard to fend off its competition and remain the dominant leader in U.S. tobacco.

Altria Group's stock has continued to climb consistently in recent years, and despite long-term trends toward lower cigarette consumption, the tobacco giant has managed to use its brand dominance to maintain commanding market share in the industry. Even with large changes coming soon, Altria remains poised to keep leading the sector forward to new growth opportunities.

Top dividend stocks for the next decade
Investors in Altria know firsthand 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.

Dan Caplinger 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers