Altria: An Oral History

“The smokeable products segment delivered strong financial performance in the first quarter, reflecting the continued resilience of our smokeable business. Segment adjusted OCI grew by 6.3% with adjusted OCI margins expanding to 65.1%, an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokeable volumes continue to moderate.” - Salvatore Mancuso, Altria CFO, Q1’26 remarks

Altria’s Q1 revenues were up by 3.2%, and net of excise were up by more than 5%. Adjusted EPS rose 7.3% from last year’s period. Cash continues to stream as dividends and repurchases to shareholders. The company continues to move forward, with 2026 guidance reaffirmed.

I have continued to share my fascination and beliefs concerning nicotine pouches in great detail, with specific focus given to the United States. Across the country, pouches continue to be swiftly adopted, while shifts in competition and the regulatory landscape bring twists and turns. For Altria, it has not always been easy to hold on. But it has.

There remain plenty of metrics that can be used to show the company losing its grip. In Q1’26, Altria’s total oral market share declined by 5.5pp to 29%. Shipped volumes of smokeless products were down by about 3%. Each quarter, I’ve taken the liberty of contrasting such trends. This time, let us zoom out and look further back.

Long before the United States Tobacco Company was acquired by Altria, it held a near-monopoly on moist snuff in the United States. In 1980, the company’s Copenhagen and Skoal were truly dominant. Changes came, as they do. Various forms of excise taxes were applied and increased. Broadcast advertising was banned. New warning labels came into play. The company was undeterred and continued to print hefty profits.

United States Tobacco Company, Selected Financial Data (in thousands, except for per-share figures), 1980 Annual Report

Competitors such as Conwood, Swisher, and Swedish Match introduced compelling products. In Moist Snuff, UST’s share eroded to about 85%. Then there was the Smokeless Tobacco Master Settlement Agreement and Conwood’s Antitrust suit against UST. UST had to pony up over $1 billion to Conwood for damages. Ouch. When that conclusion was reached in 2000, UST’s share of the moist snuff market was down to near 75%. Half a decade later, value brands had taken a further bite, dropping UST’s share to 63%. Then, Reynolds bought Conwood, and its Grizzly brand promised to keep clawing away at the market that UST once held in its entirety.

By the time Altria acquired UST in 2009, UST’s total oral tobacco share was 58%. Fast-forward another half-decade, and ZYN was only just taking its first baby steps in the United States. When Altria decided to enter the nicotine pouch space by investing in Burger Söhne (on!) in 2019, the company’s total share of oral tobacco was down to 53%. Altria’s share, including pouches, has done nothing but decline since, accelerating recently.

There is good reason to revisit this bit of history. It is not a dire warning, nor is it a story of a company that faded away due to complacency. The above is a tale of an exceptional company, led exceptionally, that produced exceptional results without end. The catch is that the above omits key details.

At various points, UST has produced wine, cigars, pipe tobaccos, pipes, pet food, and even writing instruments (pens). Some lines were acquired rather than built. While each had a varying level of success, its oral tobacco products proved to be the enduring cash cow. Throughout UST’s history, up until only very recently, total industry (legacy) oral tobacco volumes steadily grew. During much of the period described above, the company recognized outsized volume growth in moist snuff as it displaced other categories, such as loose-leaf chew and plug & twist chew. To focus strictly on market share misses both the trend in category and total volumes.

The volume dynamic played a meaningful role in driving UST’s profits higher. However, zeroing in on volumes overlooks the highly potent driver of pricing power. Rather than rehashing the whole history with these figures attached, let us instead look at more recent periods to weigh these points.

While it may feel like ancient history, UST’s 2002 Annual Report raises considerations still echoing today in its “Smokeless Tobacco is Distinctly Different - The Evolving Debate” segment:

2002 was a landmark year with growing recognition - and acceptance - that smokeless tobacco is distinctly different from cigarettes.

The debate regarding tobacco harm reduction and the role of smokeless tobacco as part of a public health strategy to reduce cigarette smoking - as opposed to what has been characterized as the "quit or die" approach - has accelerated dramatically ever since the publication in 2001 of a 600-page report by the respected Institute of Medicine (1OM). In that report, entitled "Clearing the Smoke: Assessing the Science Base for Tobacco Harm Reduction," the 1OM concluded that "smokeless tobacco may be a valid substitute for cigarette smoking...." In a sense, this conclusion was not surprising in light of the considerable agreement in the scientific community that the use of smokeless tobacco involves significantly less risk of adverse health effects than cigarettes.

Yes, more than two decades ago, the debate over tobacco harm reduction was underway. Likewise, manufacturers, including UST, were citing the existing pool of adult smokers as a growth driver for oral tobacco categories:

ATTRACTING ADULT SMOKERS

Our research tells us that about half of the nation's 46 million adult smokers are interested in a socially acceptable option to cigarettes when they are not able to smoke, or would have to relocate to do so. From our current base of approximately five million adult consumers, this represents a tremendous opportunity to significantly grow the smokeless tobacco category.

Despite converting that pool of users being a robust driver for oral tobacco products, the company’s annual report highlighted the need to protect its core business, which was under attack. Commentary on the smokeless tobacco segment showed a continuation of the share/volume dynamics that had been at play for years:

The Company's Retail Activity Data Share & Volume Tracking System (RAD), which measures shipments from wholesale to retail, indicates that, for the year-to-date period ending December 28, 2002, total moist smokeless tobacco category shipments to retail grew 1.8 percent over the corresponding 2001 period, on a can-volume basis. The premium segment declined 2.2 percent and the price value segment increased 19.2 percent to 21.4 share points during the same period. Shipments of the Company's products to retail, per RAD, decreased .2 percent, with an overall share decline of 1.5 percentage points to 76 percent.

In 2002, UST shipped 635.8 million cans of moist smokeless tobacco products. Those products produced net sales of $1.45 billion and an operating profit of $852 million. For the sake of speeding things up, let us jump forward one decade.

In 2012, UST, operating under the Altria umbrella, shipped total oral tobacco volumes of 763 million cans, a clean 20% increase from ten years earlier. Those volumes generated sales of $1.69 billion and revenues net of excise of $1.56 billion. At a 59% reported margin, oral tobacco operating company income measured $931 million. Not too shabby, though it is worth noting that the gain in operating income compared to 2002 was less than half the rate of volume growth.

Let us now compare this to today. Since then, competition mounted, nicotine pouches came into existence and have rapidly grown, and legacy oral tobacco volumes have declined at an elevated pace. In the trailing twelve months, Altria’s oral tobacco companies (UST + Helix) shipped 726.9 million cans, or about 5% less than in 2012. This produced sales of $2.81 billion ($2.72 billion net of excise), a 66% increase versus 2012. What about the operating company income? A whopping $1.83 billion.

How rare, not to mention magnificent, is such a feat? Quite. It should also be mentioned that Altria’s share of the total oral market has collapsed by nearly half, from 55.4% in Q4’12 to 29% in Q1’26, which really says more about how much the overall oral market has grown than anything else.

You could accuse me of cherry-picking the dates compared. If you are curious, Altria’s oral volumes peaked in 2016 and have fallen by about 15% since then, while segment operating income has increased by 64%. Far from horrendous. You would also be right to call out that a portion of the TTM sales reflects nicotine pouch sales, and that, to form Helix, Altria paid an all-in price of $622 million for Burger Söhne, making comparisons to prior periods not perfectly apples-to-apples. That’s fair. However, that raises the question of whether Altria’s oral volumes permanently peaked in 2016, or whether the rise of nicotine pouches will lift them back over time. Working to answer that shouldn’t be stressed about, though, as the point of this history walk is to show that it is unproductive, even dangerous, to place sole importance on volumes or market share.

With that in mind, let us also consider that Altria has been quite promotional with on!, and the recent nationwide rollout of on! Plus, included in the TTM figures is weighing on profits, too, which brings me to my next point.