“Only the most committed or addicted smokers remain.” On “The Intelligence” @econcallum explains the economics of smoking https://t.co/dsihXsov00 https://t.co/cj05bCI8ax ...

Core Insights - Scandinavian Tobacco Group A/S reported third quarter 2025 results with net sales of DKK 2.4 billion, showing organic net sales in line with the previous year [1][6] - The company narrowed its full-year expectations due to increased visibility and the impact of USD developments [6][7] Financial Performance - Reported net sales decreased by 3.0% compared to the previous year, while organic net sales growth was slightly up by 0.3% [6] - EBITDA before special items was DKK 519 million, with an EBITDA margin of 22.0%, down from 23.4% last year [1][6] - Free cash flow before acquisitions was DKK 173 million for the third quarter and improved to DKK 448 million for the first nine months [1][3][6] - Adjusted EPS for the third quarter was DKK 3.4, down from DKK 4.1 last year [1][6] Market Trends - Organic growth was positive in Handmade Cigars and Next Generation Products, while Machine-Rolled Cigars and Smoking Tobacco experienced negative organic growth [2] - The decline rate in handmade cigars shows early signs of stabilizing [2] - The EBITDA margin for the first nine months of the year was 19.9%, reflecting a decline due to product and market mix and investments in market share stabilization [3] Strategic Outlook - CEO Niels Frederiksen noted early signs of stable sales but continued margin compression due to market and product mix [5] - A new five-year strategy will be launched on 20 November 2025, aimed at creating meaningful value for stakeholders [5][9]

Core Viewpoint - Altria's stock offers a high yield of 7.5% and trades at a low price-to-earnings multiple of 13, raising questions about its future sustainability and growth potential [2][9]. Group 1: Dividend and Financial Performance - Altria is recognized as a Dividend King, having increased its dividend payout for the 60th time in 56 years, indicating a strong history of returning value to shareholders [2]. - For the period ending September 30, Altria's sales declined by 3% to $6.1 billion, while net earnings rose by 4% to $2.4 billion, showcasing resilience despite challenges [3][4]. - The company projects adjusted earnings per share for the full year to be between $5.37 and $5.45, reflecting a year-over-year growth rate of 3.5% to 5% [3]. Group 2: Growth Challenges - Altria's long-term growth outlook remains uncertain, with oral tobacco products contributing only 11% to its revenue and experiencing a 5% decline year-over-year [5][9]. - Revenue has decreased from $21.1 billion in 2021 to $20.4 billion in 2024, indicating a troubling trend in sales performance [6]. - The current payout ratio is less than 80%, which is sustainable for now, but future growth challenges could jeopardize the safety of the dividend [7][10]. Group 3: Market Position and Risks - Altria's fundamentals may appear stable, but the lack of proven long-term growth raises significant risks for investors [9]. - The stock's high dividend yield and low valuation could be misleading, as deteriorating financials may lead to a reassessment of its value and potential dividend cuts [10].

Core Insights - Altria Group, Inc. has formed an alliance with KT&G to explore international opportunities in modern oral nicotine products, aiming to expand its market presence beyond the U.S. [1][9] - The collaboration includes Altria acquiring a stake in Another Snus Factory, enhancing its product offerings in regions with growing demand for complex flavor profiles [2] - The partnership allows Altria to utilize KT&G's global infrastructure and product development expertise while contributing its strengths in commercialization and brand management [3] - The alliance is a strategic move towards expanding Altria's presence in smoke-free categories globally, as the modern oral market is experiencing rapid growth [4] - Successful execution of this partnership is crucial for Altria to strengthen its position in next-generation products and work towards a smoke-free future [5] Competitive Landscape - Philip Morris International Inc. has established itself as a leader in the smoke-free transition, with smoke-free products contributing 41% of its net revenues in Q3 2025, and its nicotine pouch brand ZYN showing 39% growth [6] - Turning Point Brands, Inc. is also experiencing significant growth, with its Modern Oral portfolio representing nearly one-third of sales and revenues rising 31.2% year-over-year to $119 million in Q3 2025 [7] Financial Performance - Altria's shares have declined by 12.8% over the past month, compared to a 4% decline in the industry [8] - Altria trades at a forward price-to-earnings ratio of 10.46X, lower than the industry average of 14.07X [11] - The Zacks Consensus Estimate indicates year-over-year earnings growth of 6.1% for 2025 and 2.5% for 2026 [12]

Market Overview - The overall market has performed well this year, with the S&P 500 still up double digits despite a recent pullback, which is viewed as a healthy sign [1] Analyst Background - The contributing analyst is part of the iREIT+Hoya Capital investment group and focuses on dividend investing in quality blue-chip stocks, BDCs, and REITs, aiming to help lower and middle-class workers build investment portfolios of high-quality, dividend-paying companies [2] Investment Position - The analyst has a beneficial long position in the shares of MO and VZ, indicating a personal investment interest in these companies [3]

Core Viewpoint - Investors interested in undervalued tobacco stocks should consider Universal Corp. (UVV) over British American Tobacco (BTI) due to UVV's stronger performance in key valuation metrics and analyst outlook [1][3][7] Valuation Metrics - UVV has a forward P/E ratio of 11.58, while BTI's forward P/E is 12.12, indicating UVV may be more attractively priced [5] - The PEG ratio for UVV is 2.89, compared to BTI's 3.82, suggesting UVV offers better value relative to its expected earnings growth [5] - UVV's P/B ratio stands at 0.91, significantly lower than BTI's P/B of 1.77, further supporting UVV's undervaluation [6] Analyst Outlook - UVV currently holds a Zacks Rank of 1 (Strong Buy), reflecting an improving earnings estimate revision trend, while BTI has a Zacks Rank of 3 (Hold) [3][7] - The positive earnings outlook for UVV enhances its attractiveness as a value investment option [7]

Core Viewpoint - Altria Group's forward dividend yield has reached 7.5% following a stock pullback, raising questions about the sustainability of its dividend amidst challenging trends in its business [1] Financial Performance - In Q3, Altria's revenue net of excise taxes decreased by 1.7% year over year to $5.25 billion, while adjusted EPS rose by 3.6% to $1.45, falling short of analyst expectations for revenue of $5.32 billion [3] - Revenue net of excise taxes for the smokeable segment fell by 1.3% to $4.6 billion, with adjusted operating income increasing slightly by 0.7% to $2.96 billion [6] Shipment Trends - Overall shipment volumes for Altria dropped by 8.2%, with Marlboro brand shipments declining by 11.7% and other premium brands down by 9.7%. In contrast, discount brand shipments surged by 74.5% [4] - For the oral tobacco product segment, revenue net of excise taxes fell by 4.3% to $665 million, with shipment volumes decreasing by 9.6% to 178.2 million units [7] Market Dynamics - Economic pressures, including inflation, are causing adult smokers to shift from premium to discount brands, although Altria has gained market share in the discount segment [5] - Altria's Njoy e-vapor business is embroiled in a patent dispute with Juul, while facing competition from illicit flavored disposable e-vapor products, which constitute an estimated 60% of the market [6] Dividend and Valuation - Despite the challenges in its core cigarette business, Altria's dividend remains well covered, and its balance sheet is in good condition, making the stock appear more reasonably valued than earlier in the year [8]

Core Viewpoint - Low-volatility stocks may struggle to outperform the market over time, particularly during bull markets, highlighting the importance of careful investment selection [1] Group 1: Hamilton Insurance Group (HG) - Hamilton Insurance Group operates global specialty insurance and reinsurance platforms across four countries, with a rolling one-year beta of 0.31 [2] - The stock is currently trading at $25.68 per share, representing 0.9 times forward price-to-book ratio [4] - Concerns about HG include its performance in the market and potential underperformance compared to other investments [3] Group 2: Altria (MO) - Altria is best known for its Marlboro brand and offers a range of tobacco and nicotine products, with a rolling one-year beta of 0.03 [5] - The stock is priced at $57.20 per share, trading at 10.3 times forward price-to-earnings ratio [7] - Altria may present a strong investment opportunity due to its established market presence and product offerings [6] Group 3: Merck (MRK) - Merck develops and sells prescription medicines, vaccines, and animal health products, with a rolling one-year beta of 0.52 [8] - The company has faced challenges, including a projected flat revenue outlook and a 56.9% annual contraction in earnings per share over the past year [9] - Despite these challenges, Merck boasts a best-in-class gross margin of 70.9% and a healthy operating margin of 55%, indicating efficient operations [10] - Merck's massive revenue base of $64.23 billion provides significant negotiating power in a highly regulated sector [11] - The company has seen improvements in adjusted operating profits and free cash flow margin, enhancing its capacity for growth initiatives and shareholder returns [11]

Core Viewpoint - Altria Group, Inc. (NYSE:MO) is recognized for its strong long-term performance in the stock market, despite the analyst's personal aversion to tobacco stocks [1][2]. Company Overview - Altria Group, Inc. produces and sells a variety of tobacco and nicotine products, including cigarettes, cigars, smokeless tobacco, nicotine pouches, and e-vapor products [2]. Investment Perspective - The stock has shown superior returns compared to many others, as noted during the analysis for "How to Make Money in Any Market" [1][2]. - Despite acknowledging Altria's investment potential, the analyst expresses a preference for other stocks, particularly in the AI sector, which are believed to offer greater upside potential and less downside risk [2].

Financial Data and Key Metrics Changes - For the first half of fiscal year 2026, consolidated revenue increased by $40 million to $1.3 billion, driven by higher third-party tobacco processing volumes and increased sales volumes in the ingredients operations segment [8][9] - Operating income rose by $16 million to $101 million, primarily due to a favorable product mix in the tobacco operations segment [8] - In the second quarter, consolidated revenue was up $43 million to $754 million, with operating income decreasing by $1 million to $68 million due to unfavorable foreign currency comparisons and higher inventory write-downs [10][11] Business Line Data and Key Metrics Changes - Tobacco operations segment revenue rose by $29 million on a 3% increase in tobacco sales volumes, but segment operating income declined by $12 million due to unfavorable foreign currency comparisons and higher inventory write-downs [10][11] - Ingredients operations segment revenue increased by 11% on higher sales volumes, but operating income was lower due to a less favorable product mix and higher fixed costs [9][11] Market Data and Key Metrics Changes - Uncommitted inventory levels in the tobacco segment decreased to 13%, down from 20% in the previous quarter, indicating effective management of inventory amidst larger crop sizes [20][34] - Worldwide estimated unsold flue-cured tobacco early stocks were at 101 million kilos as of September 30, up 76 million kilos from June 30, attributed to large crops [41][42] Company Strategy and Development Direction - The company is focused on maximizing and optimizing its tobacco business while navigating expected oversupply conditions later in the fiscal year [12] - The ingredients segment is positioned for growth, with an emphasis on expanding production capabilities and customer engagement [6][12] - Sustainability efforts are being prioritized, with investments in renewable energy and operational efficiency to create long-term value [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the challenges posed by the consumer packaged goods industry and tariff uncertainties, while maintaining a positive outlook for the second half of the fiscal year [19][28] - The company is committed to driving organic growth and delivering customized solutions to customers, despite the mixed market conditions [12][28] Other Important Information - Interest expense decreased by $4 million year over year, reflecting efforts to reduce leverage [9][40] - The company has approximately $340 million available under its revolving credit facility as of September 30 [9] Q&A Session Summary Question: Regarding the ingredients segment, what is the current utilization at Lancaster and the expected improvement in fixed cost absorption? - Management indicated that they are off to a good start with revenue growth and are focused on converting customer interest into product sales, which will help cover fixed costs over time [18][19] Question: How confident is management about pricing discipline and margins in the tobacco segment with larger crops and softer pricing? - Management expressed comfort with current pricing and demand, noting that while green pricing has softened in some markets, overall demand remains firm [20] Question: What factors contributed to the loss in the ingredients segment during the second quarter? - Management acknowledged that various factors, including market conditions and customer challenges, impacted the pace of conversion and overall performance [28] Question: What is the anticipated uncommitted inventory level for the full year? - Management expects to stay within the comfort range for uncommitted inventory, emphasizing effective communication with customers to ensure timely shipments [35][39]