The Zacks Tobacco industry is facing mounting challenges, including declining cigarette sales – resulting from shifting consumer preferences, inflationary pressures and tightening regulations. Rising health awareness and stricter restrictions on smoking are reducing demand for traditional tobacco products, weighing on the overall industry performance.Despite these headwinds, companies such as Philip Morris International Inc. ((PM), Altria Group, Inc. ((MO) and Turning Point Brands, Inc. ((TPB) are well-posi ...

Core Insights - Sin stocks, representing companies in industries like alcohol, tobacco, cannabis, and gambling, are often viewed as unethical but have a history of delivering strong returns due to consistent demand [2][3][4] - These stocks are characterized by their defensive nature, maintaining stable demand even during economic downturns, which allows for strong pricing power and consistent cash flows [3][4] - Despite their potential for robust returns, sin stocks face challenges such as heavy regulation, negative public perception, and ethical concerns that may deter some investors [5][10] Industry Overview - Sin stocks have shown resilience during both economic expansions and contractions, making them appealing for investors willing to overlook ethical concerns [4] - The alcohol sector is experiencing a shift towards premium and craft offerings, while tobacco companies are adapting to declining cigarette use by investing in vaping products [8] - The cannabis industry is rapidly expanding in regions where legalization is increasing, presenting both growth opportunities and volatility [8][9] Company Analysis - **Diageo Plc (DEO)**: Focuses on market share growth through innovation and premiumization in the alcohol sector [6] - **Las Vegas Sands (LVS)**: Concentrates on property upgrades and strategic investments to drive growth in the gambling sector [6][18] - **Turning Point Brands (TPB)**: Building a growth story around established brands and next-generation products, with a focus on smoke-free alternatives [12][13][14] - **Boston Beer Company (SAM)**: Maintains a strong position in the U.S. craft beverage market, emphasizing innovation and operational efficiency to adapt to consumer preferences [15][16][17] - **MGM Resorts International (MGM)**: Holds a leading position in global gaming, enhancing its competitive edge through capital investments and expansion in digital gaming [18][19][20]

Industry Overview - The Zacks Tobacco industry is shifting towards smoke-free alternatives due to increased consumer health awareness and stricter regulations on traditional cigarettes [1][4] - Major companies like Philip Morris International, Altria Group, and Turning Point Brands are investing in reduced-risk products (RRPs) to cater to the demand for healthier nicotine options [1][4] Market Trends - The popularity of smoke-free options, such as heated tobacco and vaping products, is reshaping the industry as consumers seek safer alternatives [4] - Tobacco companies are leveraging strong pricing power to maintain revenues despite declining cigarette sales, as loyal consumers tend to absorb price increases [2][5] Challenges - The industry faces challenges in cigarette sales volumes due to inflation and changing consumer behavior, alongside regulatory restrictions impacting sales and advertising [6] Industry Performance - The Zacks Tobacco industry ranks 65, placing it in the top 27% of over 250 Zacks industries, indicating positive near-term prospects [7][8] - The industry has outperformed the broader market, gaining 63.8% over the past year compared to the S&P 500's 9.8% increase [10] Valuation - The industry is currently trading at a forward P/E of 15.78X, lower than the S&P 500's 21.89X and the sector's 17.62X [13] Company Highlights - **Altria Group**: Focused on transitioning to a smoke-free future with its oral nicotine pouch brand, on!, and has seen a 29.3% increase in shares over the past year [15][17] - **Philip Morris International**: Leading in RRPs with products like IQOS and ZYN, shares have surged 81% in the past year [20][21] - **Turning Point Brands**: Gaining traction with innovative products and strong demand for smokeless alternatives, shares have skyrocketed 132.8% in the past year [24][25]

For Immediate ReleaseChicago, IL – April 17, 2025 – Today, Zacks Equity Research Equity Philip Morris International Inc. (PM) , Altria Group, Inc. (MO) and Turning Point Brands, Inc. (TPB) .Industry: TobaccoLink: https://www.zacks.com/commentary/2449632/3-tobacco-stocks-worth-watching-on-robust-industry-trendsThe Zacks Tobacco industry is shifting focus toward smoke-free alternatives, driven by rising consumer health awareness and stricter regulations on traditional cigarettes. Leading companies like Philip ...

The Zacks Tobacco industry is shifting focus toward smoke-free alternatives, driven by rising consumer health awareness and stricter regulations on traditional cigarettes. Leading companies like Philip Morris International Inc. (PM) , Altria Group, Inc. (MO) and Turning Point Brands, Inc. (TPB) are investing heavily in reduced-risk products (RRPs) to capitalize on this growing trend.While cigarette sales continue to decline due to inflation and changing consumer habits, the industry maintains strong pricing ...

Financial Data and Key Metrics Changes - Revenue increased 13% to $93.7 million for Q4 2024, and full-year sales were up 11% to $360.7 million [6][25] - Adjusted EBITDA for Q4 increased 5% to $26.2 million, while full-year adjusted EBITDA rose 12% to $104.5 million [7][27] - Gross margin for the full year decreased by 39 basis points to 55.9%, and for Q4, it was 56%, down 108 basis points year over year [25][27] Business Line Data and Key Metrics Changes - Zig Zag sales increased 7% year over year to $192.4 million, with Q4 sales up 2% to $45.9 million [27][28] - Stoker's net sales increased 16% year over year to $168.3 million, with Q4 sales up 26% to $47.8 million [28] - Modern oral revenue included a 419% increase in Free sales to approximately $6.3 million for Q4, reflecting strong growth [14][32] Market Data and Key Metrics Changes - Nearly 75% of Americans now live in states with legal regulated cannabis, expanding the total addressable market (TAM) for related products [12] - Stoker's MST volume was up 10 basis points despite a category volume decline of 6.4%, with market share growing by 50 basis points year over year to 7.6% [29][30] Company Strategy and Development Direction - The company is focusing on growth opportunities in its core business after divesting the CDS segment, which is now classified as discontinued operations [4][6] - The goal is to achieve a 10% market share in the modern oral category, with significant investments planned for sales and marketing [8][34] - The company aims to leverage cross-selling opportunities between its modern oral products and Zig Zag portfolio [11][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth momentum across the organization and initiated 2025 adjusted EBITDA guidance of $108 million to $113 million [8][34] - The company is confident in the performance of its modern oral brands, particularly Free and Out, and plans to expand distribution and marketing efforts [19][20] Other Important Information - The company ended the quarter with over $46 million in cash and reported free cash flow of $56.3 million for the year [32] - Capital expenditures for 2024 were $4.6 million, with a budgeted range of $4 to $5 million for 2025 [36] Q&A Session Summary Question: Outlook for modern oral products in national convenience store chains - Management is in discussions with partners and has rolled out a regional partnership with 7-Eleven, showing early positive results [40][43] Question: Growth and distribution opportunities for Stoker's MST - Management believes there are synergies between MST and modern oral products, presenting opportunities for cross-selling [45][47] Question: Drivers of guidance for modern oral products - Guidance is based on expected growth for Free and early reorder rates, with both Free and Out seen as synergistic [50][52] Question: Contribution margin and manufacturing considerations - Gross profit margins for modern oral are in the mid-thirties, with plans to reinvest profits into sales and marketing [56][58] Question: Regulatory environment regarding nicotine products - Management views recent regulatory actions as positive and is not currently concerned about nicotine strength regulations [62][64] Question: Direct-to-consumer opportunities in the nicotine patch category - Management sees a strong online opportunity for Out, while Free will focus on brick-and-mortar channels [65][67] Question: Marketing strategies for Free and Out - The company plans to leverage both online and brick-and-mortar strategies to maximize reach across its brand portfolio [71][73] Question: Zig Zag's growth and margin profile - Zig Zag is expected to see single-digit growth, with a mix shift into lower-margin products anticipated to continue [75][78]