Can Smokeless Unit Help Altria Make A Comeback In 2018?

Altria Group Inc. MO, which has a solid base in the tobacco industry, has been bearing the brunt of receding consumer enthusiasm toward tobacco products as well as stern regulations by government bodies.

Nevertheless, Altria is not all out of hopes and has been leaning on reduced risk tobacco products to remain afloat in the market. We expect this category to be a major growth driver in 2018.

Well, let's delve deep into the troubles looming over this tobacco giant, and see if its strategic endeavors can help it witness a turnaround in 2018.

Major Deterrents in Altria's Growth Story

Persistent declines in cigarette volumes have been dragging down Altria's smokeable category's performance. This has led to a fall in the company's retail market share. In the preceding four quarters, shipment volumes in the smokeable segment declined 6.1%, 2.7%, 2.6% and 4.7%, respectively. In fact, Marlboro, one of Altria's prominent cigarette brands, registered a 6% decline in volumes in third-quarter 2017.

Regulatory hurdles in the form of limitations on marketing, anti-smoking campaigns and higher excise duties are the primary reasons for the unit's drab performance. Battered by these factors, Altria's top line lagged the Zacks Consensus Estimate in seven out of the last nine quarters.

Government Initiatives to Control Smoking

Since smoking isn't a proud practice, regulatory bodies have been chalking out plans to lower this habit. Per the November 2017 court order, companies manufacturing cigarettes must make consumers aware of the health implications of smoking through advertisements via television channels, newspapers, websites, store displays and cigarette packs. The directive was issued after the federal authorities came to a conclusion that companies need to be proactive in informing consumers about the hazards of tobacco consumption. Moreover, in July 2017, the FDA directed companies to lower nicotine in cigarettes to non-addictive or minimally-addictive levels.

Further, the FDA declared that companies manufacturing tobacco products must seek marketing authorization for any tobacco products introduced after Feb 15, 2007. In May 2016, the FDA amended this restriction to include e-cigarettes, pipe tobacco, cigars and hookah alongside traditional tobacco products. Moreover, the European Union and the FDA have proposed a ban on menthol in accordance with the Tobacco Control Act which essentially states that menthol cigarettes have an adverse impact on public health.

 
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