Tobacco Giant’s Smoke and Mirrors Can’t Hide Declining Sales
Altria, the NYSE-listed company behind iconic cigarette brands, is facing a harsh reality: its core business is in free fall. Despite this, investors are turning a blind eye, enticed by the promise of a high dividend yield and minor successes in other areas. But the numbers don’t lie – cigarette sales volumes have been plummeting for years, with a staggering 11.5% year-over-year decline in the first half of 2024.
The company’s reliance on price hikes to offset volume losses is a temporary fix at best. Eventually, consumers will reach a breaking point, and the strategy will backfire. Even with nicotine’s addictive nature, there’s a limit to how much customers will pay. Altria can’t keep raising prices indefinitely, and the law of diminishing returns will eventually catch up.
Meanwhile, investors are distracted by the company’s recent acquisition of vape maker NJOY, which has shown initial promise. However, this revenue stream is a drop in the ocean, contributing a mere $22 million to Altria’s $11.7 billion in first-half revenue. It’s a tiny Band-Aid on a much larger wound.
Comparing Altria’s stock performance to that of Hormel, a packaged food maker, reveals a curious disconnect. Hormel’s volume declines are similar to Altria’s, yet its stock price has stagnated. Altria, on the other hand, has seen its stock rise, despite its fundamental problems.
Wall Street’s enthusiasm for Altria seems misplaced, given the existential threat facing its core business. The company’s second-quarter cigarette volume decline of 13% year over year is a stark reminder of the challenges ahead. Before investing in Altria, it’s essential to separate emotions from facts and consider whether the company’s minor successes can truly offset its deep-seated problems.
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