MO - Altria Corp

[DooDiligence]

I'm surprised this trades at a 9 pct yield. So I sold my own position doing March since it held up well compared to a lot of other stocks, but not we're in a Zirp world and uncertain macro backdrop and then you have this thing which throws off cash, about as resilent as they get, has pricing power and is asset light. Risk is acceleration in volume declines, but that was the same before covid19. Terminal value is debatle (I'm an optimist), but in tens year ones investment has been returned assuming just modest growth in dividends. I'm sure people smoke less in 10 years but I'm also sure prices are higher, so how do you lose here? New regulation, law suits - or possibly bad capital allocation. But since the dividend is sacrosant, hopefully they can't mess up too much and hopefully new guy isn't dumb as a rock/too bored so he feels he needs to act. Iqos free upside, potentially large. If one fears crazy inflation down the line, their asset light model and pricing power should make them do better than most I think?

 

The problem is they have no where reinvest their earnings and they pay a lot of dividends instead of aggressive buying back. And when they reinvested, and taking on more debt to do so, they made very poor decisions.

 

I might need to cut loss on this stupid company.

 

It's only a paper loss until you take the cut.

 

I hate the decisions made by Willard but he's gone & management has been given a message, loud & clear, that they need to stick to returning capital to shareholders in this melting ice cube of a business.

 

I'm standing pat on a paper loss as well.

[LC]

What keeps you invested in MO vs PM? Just curious.

[rb]

They definitely overpaid for stakes in Juul and Cronos.  The stake in ABInbev is the most confusing to me.

 

The other way to look at the situation is the previous CEO is gone.  The current plan is to pay dividends and reduce debt.  Juul and Cronos are like free options at this point.  They also have distribution rights to iQos in addition to a portfolio of other smokeless tobacco products. 

 

We've heard a lot less about people dying from a mysterious vaping lung disease.  I wonder why?

I actually quite like Altria at this point.

 

We're somewhere at depression level economic points with a super expensive market. Crappy companies that are gonna be hit hard are trading at 20x+ multiples. The thinking is hey that's ok cause rates will be low so that's how it is. Ok, so let's say I buy that. Then why isn't a company that makes some of the most addictive products on the planet that pays a dividend that's pretty well covered and is 830 basis points over the 10 year Treasury not a great investment?

 

The ABInbev stake comes from the ABInbev acquisition of SAB Miller. Great company SAB Miller, dumb acquisition by ABInbev. Some of it was with stock, so Altria now owns ABInbev.

[JRM]

What keeps you invested in MO vs PM? Just curious.

 

MO over PM is clearly a pure play bet on the vastly superior U.S healthcare system to keep alive Altria's core boomer customer longer in order to extract maximum value.

 

In all seriousness, to me it looks like a better value with some built in optionality.

[DooDiligence]

What keeps you invested in MO vs PM? Just curious.

 

I bought MO in mid-2017 & was attracted to the asset light business, high ROE's & captive (sort of) customer base.

 

I had owned UST before they were acquired by Altria (I wish MO would have never bought them).

 

I expected MO to continue returning cash through dividends & buybacks & envisioned someone eventually buying the remains of this melting ice cube.

 

Then along came Howard Willard  :-X  (Retired after a bout with COVID, my unwashed butt crack).

 

I probably should have picked up some PM but have sworn off tobacco as a place to put any new cash.

 

I hope to break even on this position in another decade ??? and I know, opportunity cost, but I just can't bring myself to lock in the loss.

 

The main reason I bought Altria is that I'm an idiot.

[LC]

The main reason I bought Altria is that I'm an idiot.

Nah, Willard is simply a true failure of a CEO - the worst example of the executive class. He should be ashamed of himself TBH. The BoD should've taken him out back and put him out of his misery.

[plato1976]

as long as they can continue to raise the price to compensate the volumn drop the stock has value at this level

but I don't know how to convince myself that they can continue to do it

 

 

What keeps you invested in MO vs PM? Just curious.

 

I bought MO in mid-2017 & was attracted to the asset light business, high ROE's & captive (sort of) customer base.

 

I had owned UST before they were acquired by Altria (I wish MO would have never bought them).

 

I expected MO to continue returning cash through dividends & buybacks & envisioned someone eventually buying the remains of this melting ice cube.

 

Then along came Howard Willard  :-X  (Retired after a bout with COVID, my unwashed butt crack).

 

I probably should have picked up some PM but have sworn off tobacco as a place to put any new cash.

 

I hope to break even on this position in another decade ??? and I know, opportunity cost, but I just can't bring myself to lock in the loss.

 

The main reason I bought Altria is that I'm an idiot.

[LC]

That is my fear and the reason I shifted to PM.

 

The volume drops are quite severe at MO - and while I know that the big urban centers can afford $10+ packs of cigarettes, I am less confident about the rest of the country.

[plato1976]

but why it's less severe at PM

b/c it's more low end ?

 

That is my fear and the reason I shifted to PM.

 

The volume drops are quite severe at MO - and while I know that the big urban centers can afford $10+ packs of cigarettes, I am less confident about the rest of the country.

[DooDiligence]

The major threats are continued cigarette unit volume declines (obvious), margin erosion due to inability to offset with price increases & more poor capital allocation decisions.

 

That said, they survived the tobacco litigation onslaught & still produce massive cash flow.

 

Lipstick on a smoked pig?

[LC]

but why it's less severe at PM

b/c it's more low end ?

 

That is my fear and the reason I shifted to PM.

 

The volume drops are quite severe at MO - and while I know that the big urban centers can afford $10+ packs of cigarettes, I am less confident about the rest of the country.

Good question and I am not entirely sure. IMO marlboro is a premium positioned cigarette product (in USA). My impression is the social stigma of smoking is less severe in other countries.

[DooDiligence]

but why it's less severe at PM

b/c it's more low end ?

 

That is my fear and the reason I shifted to PM.

 

The volume drops are quite severe at MO - and while I know that the big urban centers can afford $10+ packs of cigarettes, I am less confident about the rest of the country.

Good question and I am not entirely sure. IMO marlboro is a premium positioned cigarette product (in USA). My impression is the social stigma of smoking is less severe in other countries.

 

Price increases might be playing a part in peoples decisions to quit.

[FCharlie]

 

Price increases might be playing a part in peoples decisions to quit.

 

 

Altria price increases are typically 7 to 9 cents per pack a few times per year. It's really not that aggressive when you think about it.

 

I am pretty blown away that in a world where interest rates appear to be going negative globally that a 9% yielding dividend KING with 54 increases in the last 50 years is so unloved.

[sleepydragon]

What keeps you invested in MO vs PM? Just curious.

 

I bought MO in mid-2017 & was attracted to the asset light business, high ROE's & captive (sort of) customer base.

 

I had owned UST before they were acquired by Altria (I wish MO would have never bought them).

 

I expected MO to continue returning cash through dividends & buybacks & envisioned someone eventually buying the remains of this melting ice cube.

 

Then along came Howard Willard  :-X  (Retired after a bout with COVID, my unwashed butt crack).

 

I probably should have picked up some PM but have sworn off tobacco as a place to put any new cash.

 

I hope to break even on this position in another decade ??? and I know, opportunity cost, but I just can't bring myself to lock in the loss.

 

The main reason I bought Altria is that I'm an idiot.

 

 

The day after I made my purchase of MO, a huge storm broke a tree in my yard and hit my house hard, at 2am. My wife asked: is this because you bought the tobacco stock.

 

[sleepydragon]

 

Price increases might be playing a part in peoples decisions to quit.

 

 

Altria price increases are typically 7 to 9 cents per pack a few times per year. It's really not that aggressive when you think about it.

 

I am pretty blown away that in a world where interest rates appear to be going negative globally that a 9% yielding dividend KING with 54 increases in the last 50 years is so unloved.

 

Yeah, I think MO has more rooms for price increases compared to PM.

But the real risk if government will one day out law cigarettes.

Less likely to happen at emerging market countries - governments there need the tax money.

More likely in USA perhaps.

 

[DooDiligence]

What keeps you invested in MO vs PM? Just curious.

 

I bought MO in mid-2017 & was attracted to the asset light business, high ROE's & captive (sort of) customer base.

 

I had owned UST before they were acquired by Altria (I wish MO would have never bought them).

 

I expected MO to continue returning cash through dividends & buybacks & envisioned someone eventually buying the remains of this melting ice cube.

 

Then along came Howard Willard  :-X  (Retired after a bout with COVID, my unwashed butt crack).

 

I probably should have picked up some PM but have sworn off tobacco as a place to put any new cash.

 

I hope to break even on this position in another decade ??? and I know, opportunity cost, but I just can't bring myself to lock in the loss.

 

The main reason I bought Altria is that I'm an idiot.

 

 

The day after I made my purchase of MO, a huge storm broke a tree in my yard and hit my house hard, at 2am. My wife asked: is this because you bought the tobacco stock.

 

;D

[DooDiligence]

 

Price increases might be playing a part in peoples decisions to quit.

 

 

Altria price increases are typically 7 to 9 cents per pack a few times per year. It's really not that aggressive when you think about it.

 

I am pretty blown away that in a world where interest rates appear to be going negative globally that a 9% yielding dividend KING with 54 increases in the last 50 years is so unloved.

 

Yeah, I think MO has more rooms for price increases compared to PM.

But the real risk if government will one day out law cigarettes.

Less likely to happen at emerging market countries - governments there need the tax money.

More likely in USA perhaps.

 

Our feelings about a position are colored by price drops.

 

I think the sell off is attributed to institutional investors opinions of Howard Willard.

 

We'll see if they start chasing yield now that he's gone.

 

The business still has a few puffs left.

[DooDiligence]

Positive news on heat not burn.

 

www.fool.com/investing/2020/07/15/iqos-reduced-risk-label-victory-shows-altrias-dual.aspx

 

---

and on the other end of the pendulum,

---

 

Questions about the safety of the product & how it's being marketed.

 

http://tobacco.stanford.edu/tobacco_main/publications/IQOS_Paper_2-21-2020F.pdf

[frommi]

Earnings of the first half of this year look pretty good to me.

But does somebody understand what this means:

 

PM USA’s exclusive license and distribution agreement for IQOS with Philip Morris International Inc., has two important milestones:

PM USA would maintain exclusive U.S. distribution rights upon achieving 0.5% dollar share in a single geographic area, within a specified time period by April 2022.

Additionally, PM USA’s distribution rights are subject to an initial five-year term. The initial term expires in April 2024 and renews at PM USA’s option for an additional five-year term upon achieving 0.5% dollar share of the cigarette category in a certain number of geographic areas, each within a specified time period.

 

What exactly does 0.5% dollar share mean? Does PM get 0.5% dollar of the revenue? (If yes this would be a whole lot less than i thought it would be)

[mwtorock]

My understanding of 0.5% is that it is market share target (e.g. iQos sales/total cig sales). if they dont push hard and reach that targe, PM International could find another distributor.

 

Both companies do not disclose the revenue or profit split. I have been trying to find out for a while, but have not got anything.

 

Earnings of the first half of this year look pretty good to me.

But does somebody understand what this means:

 

PM USA’s exclusive license and distribution agreement for IQOS with Philip Morris International Inc., has two important milestones:

PM USA would maintain exclusive U.S. distribution rights upon achieving 0.5% dollar share in a single geographic area, within a specified time period by April 2022.

Additionally, PM USA’s distribution rights are subject to an initial five-year term. The initial term expires in April 2024 and renews at PM USA’s option for an additional five-year term upon achieving 0.5% dollar share of the cigarette category in a certain number of geographic areas, each within a specified time period.

 

What exactly does 0.5% dollar share mean? Does PM get 0.5% dollar of the revenue? (If yes this would be a whole lot less than i thought it would be)

[Spekulatius]

Earnings of the first half of this year look pretty good to me.

But does somebody understand what this means:

 

PM USA’s exclusive license and distribution agreement for IQOS with Philip Morris International Inc., has two important milestones:

PM USA would maintain exclusive U.S. distribution rights upon achieving 0.5% dollar share in a single geographic area, within a specified time period by April 2022.

Additionally, PM USA’s distribution rights are subject to an initial five-year term. The initial term expires in April 2024 and renews at PM USA’s option for an additional five-year term upon achieving 0.5% dollar share of the cigarette category in a certain number of geographic areas, each within a specified time period.

 

What exactly does 0.5% dollar share mean? Does PM get 0.5% dollar of the revenue? (If yes this would be a whole lot less than i thought it would be)

 

It means they need to achieve 0.5% market share ( in terms of revenues, not volumes) to keep the license. At least that’s my read. I don’t see the license royalties in this excerpt anywhere.

[rb]

Pretty blah quarter. But at these levels it's pretty good value.

[manuelbean]

Unless volumes go down another 12% as they did in the GFC.

[frommi]

It means they need to achieve 0.5% market share ( in terms of revenues, not volumes) to keep the license. At least that’s my read. I don’t see the license royalties in this excerpt anywhere.

 

Thanks, that makes sense. Yes i search for that info since i started investing here, but also haven`t found it. That info is so important to me that i sometimes misinterpret everything into that direction. :D

[manuelbean]

Does the company report iQos sales or volumes? I can't find it anywhere?

 

By the way, if there's anyone following PM, do you know what is their revenue recognition policy for the iQos device? Here in Europe, whenever a device stops working the company will immediately replace it at no cost. I believe that the company does it because the cost is overwhelmingly lower than the benefit of having people smoke the Heets on a regular basis.