Altria (MO)-Philip Morris Strike a Deal for IQOS Transition
Altria Group, Inc. MO unveiled that its subsidiary signed an agreement with Philip Morris International Inc.‘s PM subsidiary. Per the agreement, Altria will receive cash payments from Phillip Morris to assign exclusive U.S. commercialization rights to the IQOS Tobacco Heating System, effective Apr 30, 2024. Notably, Philip Morris will pay a total amount of nearly $2.7 billion (pre-tax).
We note that Philip Morris is one of the industry pioneers in driving the shift from cigarettes to reduced risk products (RRPs). PM is committed to expanding its products to more markets. It has also been making radical progress in the respiratory drug delivery platform as part of the “Beyond Nicotine" strategy. Philip Morris has been benefiting from its strong pricing of tobacco products.
Meanwhile, Altria is committed to its efforts of transitioning adult smokers to a smoke-free future. The company believes in a portfolio approach to tobacco harm reduction as it competes in the major smoke-free categories. The company noted that it has reinvested into the internal product development system and expects to finalize designs for two smoke-free products, including a heated tobacco product, by 2022-end. All said, the above-mentioned IQOS transition will allow Altria greater flexibility in allocating resources toward Moving Beyond Smoking.
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What Else is Working Well for Altria?
Altria has been benefiting from its strong pricing power, which has helped the company stay firm, even amid soft cigarette shipment volumes and times of higher taxes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. In the second quarter of 2022, higher pricing supported revenues across the Smokeable Products and Oral Tobacco categories, which were otherwise hurt by lower volumes.
Altria’s tobacco business has not witnessed any material disruption due to the COVID-19 pandemic. The company’s manufacturing facilities and operating centers have stayed functional. Most of the retail stores where the company’s products are sold (like convenience stores) have been considered essential businesses and have remained open. For 2022, the company envisions an adjusted earnings view in the range of $4.79-$4.93 per share. The bottom line indicates growth of 4% to 7% from the $4.61 recorded in 2021.
The Zacks Rank #3 (Hold) company’s shares have gained 4.5% in the past three months against the industry’s decline of 5.8%.
2 Solid Staple Bets
Some better-ranked stocks are Lancaster Colony LANC and The J. M. Smucker SJM.
Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1 (Strong Buy). LANC delivered an earnings surprise of 170% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lancaster Colony’s current financial year sales and earnings per share (EPS) suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures.
J. M. Smucker, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2 (Buy). J. M. Smucker delivered a trailing four-quarter earnings surprise of 20.8%, on average.
The Zacks Consensus Estimate for SJM’s current financial year sales suggests growth of 4.4% from the year-ago period’s reported figure.
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