High inflation rates in 2022 affected tobacco consumer’s behaviors, discretionary income and spending, Altria said in its fourth-quarter 2022 earnings report.
“As a result, our businesses and the industry experienced elevated volume declines, and we observed accelerated share growth in discount cigarettes,” the Richmond, Virginia-based tobacco company said. “Despite these factors, our leading tobacco brands remained resilient, and we continued to observe significant brand loyalty in the tobacco space overall.”
Net revenues decreased 2.3% to $6.1 billion in fourth quarter 2022, primarily driven by lower net revenues in the smokeable products segment, Altria said. For the full year 2022, net revenues were down 3.5% to $25.1 billion year-over-year. This was primarily driven by the sale of Altria’s former Ste. Michelle wine business in October 2021, the company said, and lower net revenues in the smokeable products segment.
Cigarette Sales Sink
Altria’s cigarette sales volume sunk by about 12% in the fourth quarter of 2022. The consumer remains under pressure, Altria’s CEO Billy Gifford said at the company’s Feb. 1 earnings call, which is causing them to smoke fewer cigarettes per day and switch to cheaper brands.
Marlboro’s, Altria’s flagship cigarette brand, retail share of the total cigarette category decreased 0.4 share points to 42.5% in the fourth quarter. This was primarily due to increased macroeconomic pressures on the adult tobacco consumer’s disposable income and increased competitive activity, Altria said.
However, Marlboro’s share of the premium segment grew to 58.2%, an increase of 0.5% share points.
“We are encouraged by Marlboro’s resilient performance as the brand celebrates 50 years of leadership in the cigarette category,” Sal Mancuso, Altria’s CFO, said on the call.
Nicotine Pouches Increase Share
The U.S. nicotine pouch category grew to 24.4% of the U.S. oral tobacco category in fourth quarter 2022, an increase from the year prior. Altria’s modern oral nicotine (MON) pouch On grew its share 2.5 points versus the prior year to 24%, Altria said.
“This impressive performance was driven by continued increases in brand awareness and adoption by smokers and dippers,” Gifford said. “Additionally, we believe Helix effectively managed On promotional spend as the year progressed and reduced On promotional spend per can by approximately 15% during the second half of the year compared to the first half.”
Altria established Helix Innovations LLC in 2019 to commercialize and distribute On.
Innovation Progresses
Gifford also highlighted the company’s progress in innovation.
“In oral tobacco product development, we are excited to announce we have finalized a new product design, which will provide tobacco consumers more smoke-free options within our portfolio,” he said. “We also began regulatory preparations for the product, and we are encouraged by the initial research results and the response we have received from dippers and nicotine pouch users.”
More information on the product will be released at Altria’s investor day in March, he said.
Altria has not finalized the design of its heated tobacco capsule product, but the team is making progress, Gifford said. It also announced a strategic partnership with Japan Tobacco in October to eventually bring heated tobacco sticks, made of Ploom-branded devices and Marlboro-branded consumables, to the United States.
Juul Devalued
E-vapor has been a major contributor to the growth of smoke-free products over the five-year period, Gifford said, although volumes declined by an estimated 1% year-over-year amid considerable regulatory uncertainty, such as the FDA marketing denial order and subsequent temporary stay on Juul products. This cause disruptions for both consumers and retailers, he said.
As of Dec. 31, 2022, the estimated fair value of Altria’s investment in Juul was $250 million. This is a significant drop from the initial value of Juul when Altria invested a 35% stake in the company in 2018.
In September, when Altria announced it was ending its noncompete agreement with Juul, San Francisco, it said it valued its investment in Juul at $450 million. Juul did not respond back to CSP’s request for comment on its devaluation.
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