Altria: High Prices Compensate Volume Declines


The consumption of cigarettes lowered by 4% in the USA because of numerous smoking bans, increase of legal smoking age, quit smoking programs and high prices on cigarettes. People today are aware enough about the effects of smoking on their body and more and more of them do refuse from smoking.

Food and Drug Administration is main regulator of tobacco consumption. Taxes  on cigarettes have seen 113 increases since 2000 and in these conditions tobacco companies are struggling to maintain their earnings growth.

However, it seems like Altria Group Inc. doesn’t make part of the struggles. In recent years the company’s revenue has been almost flat and it has managed to continue growing into a worthwhile investment. Last quarter investors Ray Dalio (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio) have acquired Altria’s shares hoping to gain good profits.

Altria, the manufacturer of Marlboro cigarettes, is largest tobacco company in the USA., with over 50% market share. It managed to build a successful business, with the greatest economy of scale in the industry and high customer loyalty.

Most smokers prefer to buy Marlboro cigarettes. The brand controls over 40% of the domestic market, but it is not the Altria’s only revenue stream.
It should be noted that Altria now operates exclusively in the tobacco industry. It’s most popular divisions in the USA are Phillip Morris USA, Smokeless Tobacco Company, MarkTen eCigs, John Middleton.

Experts say that Altria’s pricing power should compensate volume declines. Management’s commitment to shareholders is great, with almost 80% of net income dedicated to dividend payments, which sported a yield of 5.09% in 2013.

The company’s pricing power should make revenue grow at an average annual 2% rate.

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