4 Highlights From Altria’s Q3 2021 Earnings Call

RICHMOND, Va. —While Altria Group has been ordered to halt sales of IQOS, other alternative tobacco products, like On nicotine pouches, are growing share.

The Richmond, Va.-based company shared updates on these products and more during its third-quarter 2021 earnings call on Oct. 28, the details of which were shared on its website.

In the third quarter, Altria balanced minimizing profitability from its core tobacco business with investing in its vision of responsibly leading the transition of adult smokers to a smoke-free future, CEO Billy Gifford said.

“Our tobacco businesses performed well against difficult year-over-year comparisons, and we’re encouraged by the significant retail share growth from On in the third quarter,” Gifford said. “We also continued to reward shareholders with a strong and growing dividend and announced today the expansion of our existing $2 billion share repurchase program to $3.5 billion.”

Net revenues for Altria decreased 4.7% to $6.8 billion in the third quarter, primarily driven by lower net revenues in the smokeable products segment, the company said.

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The total U.S. oral tobacco category share for On nicotine pouches grew to 3% in the third quarter, an increase of 1.9 percentage points from the end of 2020, Altria said. As of Sept. 30, the U.S. distribution of On reached more than 110,000 stores.

Premarket tobacco product applications (PMTAs) for the On portfolio remain pending with the U.S. Food and Drug Administration (FDA). Modified risk tobacco product applications for On are also in the works.

“These strong results were driven by increased smoker trial and repeat purchase from existing On consumers,” Gifford said on the call. “We're excited by the performance of On during the first nine months of the year, and believe consumer insights, disruptive retail executions and consumer engagement will continue to fuel its growth.”

U.S. Smokeless Tobacco Co., part of Altria Group, received marketing approval from FDA on Oct. 19 for four oral tobacco products under its Verve brand, which was discontinued in February 2019.

Verve Discs and Verve Chews were authorized in Green Mint and Blue Mint flavors. This is the first flavored product authorization issued by the FDA for newly deemed tobacco products, but Altria doesn’t appear to have plans to bring these products back on the market.

“While Verve products are not currently in market, Altria believes it gained learnings from developing the Verve PMTA submission that it used to file its May 2020 PMTA submissions for On, nine months after Altria closed the On transaction,” the company said.

The U.S. International Trade Commission (ITC) imposed an importation ban and issued cease-and-desist orders on IQOS, Marlboro HeatSticks and infringing components. The Washington, D.C.-based commission ruled Sept. 29 that IQOS infringes on two patents held by rival R.J. Reynolds, a subsidiary of British American Tobacco.

The product will have to be removed from U.S. store shelves if the ruling is upheld.

Altria said it was disappointed in the decision because the IQOS heating tobacco system is the only inhalable tobacco product to have received FDA authorization as a modified risk tobacco product (MRTP), and the ITC’s ban could now make the product unavailable.

“We continue to believe that the plaintiff’s patents are invalid and that IQOS does not infringe on those patents,” Altria said in a statement in its earnings call presentation. “The ITC’s decision is currently under 60-day review by the administration’s U.S. trade representative. In the event that the administration does not reject the decision, we’re preparing to comply with the order. We’ve been focused on our contingency plans surrounding sales and distribution and have been in communication with PMI on their domestic manufacturing plans.”

IQOS is a heated tobacco system that allows adult smokers to use tobacco by heating instead of burning it. Altria Group is under an exclusive licensing agreement with Philip Morris International (PMI), New York, to commercialize IQOS and its accompanying compressed-tobacco HeatSticks in the United States.

Altria believes the COVID-19 pandemic altered adult tobacco consumers’ behaviors and purchasing patterns, particularly in the earlier stages of the pandemic. It continues to monitor the macroeconomic risks of the pandemic, though, and their effect on consumers, including stay-at-home practices and disposable income.

While the number of adult tobacco consumer trips to the store remain below pre-pandemic levels and tobacco expenditures per trip are up, the environment continues to evolve as the effects of government stimulus lessen and consumer mobility returns to normal levels.

Altria said it has not experienced any material disruptions to its supply chains or distribution systems, but is monitoring these factors.