Altria (MO; A3, BBB Pos, BBB S) {MO US Equity}
Pure play US tobacco name, Altria, has reported in-line 1Q results while flagging similar US headwinds that PM did earlier (PM only has 5% exposure left in US). Altria runs low exposure (just north of 10%) on non-combustibles and as we are seeing it's struggling to offset the market's decline on high single digit pricing increases (though its saying margins will lift into 2H). Equity returns are sizeable which question its intent on capex/R&D into the higher-growth segments.
Ignoring the $ space (BAT trading wide is not a new phenomena there) the widening in local BAT curve that followed after the 32s priced seems overdone. BAT is more diversified geographically & has the higher non-combustible exposure. We don't take a firm spread view (moves around on flows) but BAT screens cheapest out in the long-end among the BBB names (PM in <5y where BAT trades tight). As flagged previously beware decompression (ex. PM/JAPTOB) on broader spread-sell offs (likely liquidity premium).
- Net revenues was at $4.72b (-2.5%yoy) & in line with expectations while volumes missed with cigarettes at 16.5b (c16.8b) falling 10%yoy.
- Its indicating volume fall was on US market contracting and impacted by macro and growth of illicit vapes. Reported market share at 46.4% down from 47%yoy.
- Its recommended to FTC to crack down on manufacturers, importers and distributors of illicit vapes adding "FDA's enforcement approach is not of scale or scope needed".
- On BS; its gross 2.1x levered (target 2x), $1.1b in debt matured & $1.7b paid out in dividends this qtr. Sizeable ongoing buyback programs.
- FY guidance is unch; EPS growth of 2-4.5%yoy (c+2.8%) mostly from stronger 2H.