Reynolds Results: Good for Altria
Posted on Monday, October 29th, 2007 | In Current Market NewsA dig into the recently released results buy Reynolds American (RAI) should be very encouraging to Altria (MO)shareholders
Back in April I said that Altria would not make an attempt to purchase UST (UST) for it smokeless products and instead would capitalize on the Marlboro brand name a produce one themselves. In August, when Altria announced they would do just that (produce a Marlboro product) I said that the smokeless product would be a huge hit in the growing “chew” market and provide a key drive for Phillip Morris USA going forward.
So what about Reynolds results should Altria holders like? On the conference call discussing their Q3 results. Reynolds commented on their smokeless product “Conwood Company, the nation’s second-largest maker of smokeless-tobacco products, had operating earnings of $90 million, up 18%, boosted by sales of Grizzly moist snuff. Conwood’s moist-snuff volume grew more than 12% from the prior year quarter.
Driving Conwood’s growth were additional gains on Grizzly, which continues to be the growth leader in the moist-snuff category. Grizzly’s volume was up 18%, more than twice the growth rate of the moist-snuff category. As a result, Grizzly’s share of market grew quarter-over-quarter and sequentially to 21.23%.
To further build on Grizzly’s momentum, Conwood will begin testing two new styles, Grizzly Pouches and Grizzly Snuff.”
Smokless is the only tobacco segment growing and it is growing at a very healthy clip. It is to the point now that companies are aggressively pursuing additional products to sell and the market is accepting them. Reynolds success will be Altria’s. When you have the number one tobacco product in Marlboro with almost 50% market share, any new product bearing that name will be used by consumers.
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 About Todd Sullivan (http://valueplays.blogspot.com)
Todd is a Massachusetts based value investor, that looks for companies whose current valuation is at a discount to their true value. When he purchase a stock, his typical holding period is several years, and he considers buying a stock purchasing a piece of the business. He feels that once he makes a decision to buy that eventually the market as a whole (however long it may take) will recognize the true value of the business and value it accordingly. His widely featured blog, ValuePlays, is a highly regarded investment resource that covers his successful investment strategies. |
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