What Makes Altria Group A Good Buy?

The tobacco industry is under the scanner of the FDA on approval of menthol usage in cigarettes. Major cigarette manufacturers will get affected by this decision but not Altria group (MO). It has been able to create a broad product portfolio with large brands in the cigarette category. The company has shown dividend growth rate of 7.3% during last year. In the 2nd quarter of fiscal 2013, it has achieved 5% growth in earnings and reported EPS of $0.62. Now, let's discuss a few points in detail.
Diversification towards smokeless products will drive growth
The smokable cigarettes segment is strictly regulated and with other alternatives available now, this segment is facing decline in consumption. Altria Group is diversifying its product portfolio more towards smokeless products. Chewing tobacco and snuff are two other product categories which are also preferred by consumers. In the 2nd quarter of 2013, smokeless products posted strong results with sales growth of 7.6% and operating margin growth of 12.5%. At present, smokeless products category has ~20% share in the total sales but it will increase with growing Copenhagen and Skoal brands. The company will drive its long term sales growth through its diversified products portfolio. Marlboro cigarettes online.
Pricing can be decisive in margins growth
Altria group has achieved operating margin growth of 1.5% in the smokable cigarette category, despite missing the volume target. It has increased prices to offset the decline in cigarette consumption. The demand of cigarettes is declining and it throws a challenge to the company for right pricing to drive sales growth. As industry trends for volume growth are very low, price-mix along with cost savings in the category will drive margins in the short term.
E-cigarette launch can be growth driver
E-cigarette is another fast growing category and came across as an alternative to traditional cigarettes. E-cigarette is now a worldwide $3 billion category and Altria group is also coming up with a new e-cigarette brand. The company is all set to launch MarkTen e-cigarette in the test markets of Indiana. This is a key innovation for the company and if successful, it will be rolled out across the markets to drive sales growth. This product category has seen better margins, which will help it to establish itself in the emerging markets.