Will Altria Be Able to Offset Declines in Tobacco Sales?

Cigarette consumption has been declining at a 4% rate in the U.S. market, with recent health regulations, litigation towards tobacco companies and increased medical awareness exacerbating this trend even more. With the Food and Drug Administration now in charge of regulating tobacco consumerism and imposing taxation, which has seen 113 increases since the year 2000, industry players are struggling to maintain their earnings growth.
However, Altria Group Inc. (MO) doesn’t seem to be part of the struggles. In fact, while the company’s revenue has been almost flat year-over-year, it has managed to continue growing into a worthwhile investment. Thus, investment gurus like Sarah Ketterer (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) have bought Altria’s shares last quarter, hoping to gain solid profits looking forward.
Can a Strong Brand Portfolio Fight Sales Declines?
As the largest tobacco company in the U.S., with over 50% market share, Altria has successfully built a wide moat business, with the greatest economy of scale in the industry and very high customer loyalty. In fact, 90% of Marlboro smokers purchase that brand 100% of the time and while it controls over 40% of the domestic market, it’s certainly not the company’s sole revenue stream. After shedding its international segments and all non-tobacco assets – except for a 27.1% stake in the world’s second largest brewer SABMiller – Altria now operates exclusively in the tobacco industry. It’s most popular brands include Phillip Morris USA, Smokeless Tobacco Company, John Middleton and MarkTen eCigs.
While the smokeless tobacco market, where the firm operates via its Copenhagen and Skoal brands, has shown volume increases (expected to continue over the next decade), tax bumps and regulations should stall cigarette consumption. Nonetheless, Altria’s pricing power should compensate volume declines looking forward, and management’s commitment to shareholders is impressive, with nearly 80% of net income dedicated to dividend payments, which sported a yield of 5.09% in 2013. Furthermore, the firm’s new focus on electronic cigarettes via the MarkTen eCig brand is bound to offset declines in tobacco sales, as well as CVS Caremark Corporation (CVS)’s recent announcement to retreat from tobacco product sales by October 2014.

Hite Wants 320 Million to Start, Smoking Ban at NJ Beaches, Philly Ranks 2nd in Taxation

Philadelphia Superintendent William R. Hite has put a price tag on his plan to fix the city school system. $320 million. And that's just to start on his ambitious blueprint. The full plan could cost twice that amount. Hite's request for the 2014-15 school year is above and beyond the $120 million the system is hoping for from the extra 1 percent city sales tax.

New Jersey lawmakers are considering a law that would ban smoking at the beach and public parks. The proposal is designed to eliminate exposure to secondhand smoke and to cut down on litter and to improve fire safety. Now, there are trees in the park that are flammable, but not the beach. And interestingly, smoking would still be permitted in parking areas at beaches and parks.

Philadelphia is among cities with the highest tax burden in the country. Philly is number 2 on the list overall behind only Bridgeport, Connecticut. In Philadelphia a family earning $25,000 will owe $4,000 in taxes. Higher income earners making $150,000 will owe Uncle Sam $25,000 in taxes.