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.

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Will the FDA Stub Out Menthol Cigarettes?

Here we go again. The FDA is putting menthol cigarettes in its crosshairs again, not because they're any more likely to cause illness than regular cigarettes, but because they can serve as a gateway smoke for kids.
The regulatory agency released its "preliminary scientific evaluation" yesterday and admitted there's little evidence showing menthol cigarettes are any more toxic than non-menthol ones, but that doesn't mean it doesn't think they should be more stringently regulated. Of course, it's "for the children."
Because the mint-flavored cigarettes mask the harshness of tobacco, teenagers may be more willing to start smoking, get addicted, and find it harder to quit. It was one of the reasons that flavored cigarettes, such as those infused with candy, fruit, or spice flavors, were banned back when the FDA was first given regulatory power over the cancer sticks. According to studies, half of all teens prefer menthol-flavored cigarettes, though the FDA itself says 30% of adults and 40% of teens enjoy smoking menthols.

Cigarette prices go up

British American Tobacco (BAT) Malaysia has announced a new price increase for its cigarette brands effective today.
The new price for a pack of 20 cigarettes for Dunhill, Kent and Benson & Hedges will now cost RM12 each.
Pall Mall and Lucky Strike Plains will cost RM12.50 and Pall Mall and Peter Stuyvesant will cost RM10.50.
The last price increase for BAT cigarette brands was in June.
Meanwhile, a taxation expert said excise tax hikes needed to be implemented gradually to avoid destabilising the legal cigarette market.
International Tax and Investment Centre president Daniel A. Witt said an increase that was too high implemented over too short a term could shock the market and create a demand for black market goods.
“Increasing excise tax should be done in a predictable way to stabilise the legal market, meaning those who can be taxed,” said Witt, who presented the “Asia-11: Illicit Toba­cco Indicator 2012” study to the media yesterday.
Asia-11 is a report on the illicit cigarette trade among 11 countries in 2012.
He was speaking on the recent increase of tobacco excise tax of 14% that was gazetted by the Government last Friday.
Witt said illicit cigarette trade had increased by 40% in the past eight years, caused by the steady increase of tobacco excise tax to its current level of 48%.
The report also stated that the Government lost an estimated RM1.9bil in taxes last year and had the third highest consumption levels of illicit cigarettes among the countries surveyed.
Meanwhile, Netizens and observers said the price increase would make no difference to smokers here.
Facebook user Benjamin Azad said while it was easy to blame tobacco products for health issues, it was unfair to do so.
“Why is no one taking action against fast food, processed meats, carbonated drinks or even the cooking oil used in restaurants? This is an unfair judgment,” he said.
Steven Lee said trying to curb smoking by increasing the price was pointless as it would “just drive smokers to smoke smuggled cigarettes.”
Chief activist of Malaysian Islamic Consumers Association Datuk Nazmi Johan said the price increase, while good, wouldn’t do much to stop people from smoking.