Devin- To what extent does it bother you that during last quarter's earnings presentation Altria's management always seemed to reference the long term but yet presented data that only compared YOY and left other important bits of information out altogether. I guess best case scenario it was an honest mistake b/c they didn't think any other data was necessary but worst case is that it was left out intentionally which to me is being somewhat deceitful and subsequently a huge red flag for me as an investor.
It's not actually a massive bother - more just a criticism that the visuals could be a lot better (and should be a lot better for a company of this size). I don't think it's malicious at all, just bad formatting that's been turned into tradition. This is not exclusive to Altria or the industry either. I assume those interested will put in the work to understand the full context of what is being discussed. To be honest, for Altria, could be best for fewer people to understand the business, providing share weakness, allowing share repurchases to have an amplified effect over the coming years
I also want to congratulate you on a very well researched and thoroughly enjoyable post!
Having said that, I'm more concerned than you are about Altria's volume declines for two reasons:
1. According to Altria, the macro economic environment is contributing to a 4 percent annual decline in industry volumes. However, the economy is actually doing pretty well -- the unemployment rate is at 3.5% and, using the Atlanta Fed wage growth tracker, wage growth is positive in real terms. I'm afraid the macro economic contribution will be much worse than 4% if we enter a recession.
2. I'll read Herb Greenberg's post about the pushback to CPG's price hikes. But my impression is that most CPGs have managed to increase their price/mix by 10-15% yoy while on average suffering minimal volume declines: https://twitter.com/TheTranscript_/status/1651993602116005906. I agree that historically the nicotine industry has had much lower elasticity than the CPG space, but is that really the case right now?
Thanks for your thoughts, Tian. I always appreciate getting the opportunity to read them.
1. This isn't an unfair criticism. I think while economic signals are not bleak, the net-effects on consumer buying power accumulated over the last two years have an amplified effect that take time to taper off. Additionally, while Altria classifies Macro & Other as the main culprit, perhaps a % of that is actually cross-category shift, which they marked for the TTM as 0. This would be a function of illicit vapes + difficult to track channels, which the piece mentioned. As a whole, I think it's likely that total pressure comes down overtime, though we may not be at the exact point of maximum volume declines and the shift down may be sluggish.
2. You are largely correct. I even own quite a few of the CPGs cited in the article. There's always a trade-off, and as you know, I've never been one to shy away from companies facing volume declines. However, raising price that quickly may be short-lived for some companies who can't continue to raise at such a rate without a potential disproportionate drop in volumes. Simply interesting to highlight tobacco's lock-step price function relative to that.
I think your concerns are completely valid and worth investigating further. No doubt we'll have many more chances as the industry continues to face elevated challenges throughout the year. Thanks again for commenting!
Devin, you are far an away the best Altria analyst. I regularly forward these to my CIO in lieu of sell-side reports.
This is one of the greatest compliments I've received. Thank you, Hunter
Thanks. Your pieces are addictively informative.
That's very kind, GD. I'm glad you appreciate them. Thanks for reading!
Solid work man.
Thanks for reading!
Great work as always, Devin. Thank you!
And as always, John, thanks for reading! Glad you enjoyed it
Devin- To what extent does it bother you that during last quarter's earnings presentation Altria's management always seemed to reference the long term but yet presented data that only compared YOY and left other important bits of information out altogether. I guess best case scenario it was an honest mistake b/c they didn't think any other data was necessary but worst case is that it was left out intentionally which to me is being somewhat deceitful and subsequently a huge red flag for me as an investor.
Would appreciate your thoughts. Thanks!
It's not actually a massive bother - more just a criticism that the visuals could be a lot better (and should be a lot better for a company of this size). I don't think it's malicious at all, just bad formatting that's been turned into tradition. This is not exclusive to Altria or the industry either. I assume those interested will put in the work to understand the full context of what is being discussed. To be honest, for Altria, could be best for fewer people to understand the business, providing share weakness, allowing share repurchases to have an amplified effect over the coming years
Thanks, Devin. I appreciate the thoughtful reply.
I also want to congratulate you on a very well researched and thoroughly enjoyable post!
Having said that, I'm more concerned than you are about Altria's volume declines for two reasons:
1. According to Altria, the macro economic environment is contributing to a 4 percent annual decline in industry volumes. However, the economy is actually doing pretty well -- the unemployment rate is at 3.5% and, using the Atlanta Fed wage growth tracker, wage growth is positive in real terms. I'm afraid the macro economic contribution will be much worse than 4% if we enter a recession.
2. I'll read Herb Greenberg's post about the pushback to CPG's price hikes. But my impression is that most CPGs have managed to increase their price/mix by 10-15% yoy while on average suffering minimal volume declines: https://twitter.com/TheTranscript_/status/1651993602116005906. I agree that historically the nicotine industry has had much lower elasticity than the CPG space, but is that really the case right now?
Maybe I'm too gloomy?
Thanks for your thoughts, Tian. I always appreciate getting the opportunity to read them.
1. This isn't an unfair criticism. I think while economic signals are not bleak, the net-effects on consumer buying power accumulated over the last two years have an amplified effect that take time to taper off. Additionally, while Altria classifies Macro & Other as the main culprit, perhaps a % of that is actually cross-category shift, which they marked for the TTM as 0. This would be a function of illicit vapes + difficult to track channels, which the piece mentioned. As a whole, I think it's likely that total pressure comes down overtime, though we may not be at the exact point of maximum volume declines and the shift down may be sluggish.
2. You are largely correct. I even own quite a few of the CPGs cited in the article. There's always a trade-off, and as you know, I've never been one to shy away from companies facing volume declines. However, raising price that quickly may be short-lived for some companies who can't continue to raise at such a rate without a potential disproportionate drop in volumes. Simply interesting to highlight tobacco's lock-step price function relative to that.
I think your concerns are completely valid and worth investigating further. No doubt we'll have many more chances as the industry continues to face elevated challenges throughout the year. Thanks again for commenting!