$12.8B for JUUL, $1.8B for Cronos, $3.2B for NJOY… soon we’re talking real money! To me they’re a company who never believed in RRPs and cut R&D to the bone to increase margins. On! has been their only decent acquisition.
I even doubt whether Helix Innovations (On!) is considered successful. At the minimum, I want to see On! 's profit contribution offset that ceded by its traditional oral category, owing to competition from Zyn. This is still a moonshot based on the current trajectory. Accountability is not there as they don't even apologise for these epic failures; instead, they just blame external factors. Fortunately, Marlboro is resilient as ever.
I had the same guess about on nicotine pouches deaccelerating growth due to ZYN back in the game and you to increase competition from velo +
Which I think is not as bad is it sounds because on nicotin pouches had great price increase
Could you maybe explain in simpler terms how it was possible for the NielsenIQ data to show a the growth rate of over 43% and Altrias shipment to wholesaler of only 18%
I mean if the retailer sold about 43% this would mean they need more new nicotine pouches but in the end they didn't need more nicotine pouches because of the heightened competition and therefore Ultra only sold to wholesalers about 18% due to the fact they don't order more is this the correct reasoning?
Also you are right on the management and they lost money due to failed aquisitions, nevertheless I think NJOY is not a lost case... And also conversely the lower the share price will get the higher the possible return will become if you consider the BuyBacks and reinvestment of the dividends
A few factors contribute to retail off-take (i.e., from retailers to end customers) growing faster than Altria shipments to wholesalers/distributors/retailers:
1. If keeping X dollar amount of On! inventory helps the convenience store generate 10X the dollar amount of revenue per annum, while keeping Y dollar amount of Zyn inventory generates 20Y the dollar amount of revenue per annum, such convenience store will adjust the dollar amount of On! versus Zyn inventories to reach an equilibrium and maximise revenue and return on invested capital.
2. Zyn's selling price is double that of On! For each unit of Zyn sold, two units of On! need to be sold to produce the same revenue for the convenience store. However, one unit of Zyn may occupy similar shelf space as On!, making it unfavourable to allocate more space to On! from retailer profitability perspective
3. Zyn commands a much higher gross margin than On!, potentially giving PMI more room to offer the retailer a higher cut of the product gross margin. For an equal dollar amount of Zyn and On! sold, the convenience store would still earn more gross profit from selling Zyn.
4. During Zyn's supply shortage, many convenience stores wanted to allocate more shelf space to Zyn but could not due to a lack of supply. Some convenience stores didn't even have access to the Zyn supply. In the interim, these convenience stores sold On! and Velo instead, waiting for Zyn supply to normalise. Now that Zyn's supply is normalised, it is logical for them to reduce the inventory level of rival brands to make room for Zyn product in the premium shelf space (e.g., an eye-level area).
5. Retail off-take is growing at 43% year over year without replenishing inventories at the same pace, which could mean convenience stores were effectively reducing their On! inventories to clean up shelf space and display Zyn, a much more profitable product.
Based on the latest Nielsen scanner data through 4/19, BAT's H1 will be within the consensus estimate range if the growth trajectory continues. Interestingly, most of its operating income growth in the U.S. will be driven by its cigarette segment, not vaping or oral nicotine. Note that I define oral nicotine as modern and traditional oral combined, as the growth of modern oral cannibalises traditional oral more directly.
BAT's cigarette dollar sales (as measured by retail off-take, including excise tax) declined by 3.6% yoy for the latest 12-week period and 2.2% yoy for the latest 4-week period. Volume declined by 9.6% yoy for the latest 12-week period and 8.4% yoy for the latest 4-week period. Excise tax and duty payments are linked to volume instead of dollar sales; thus, they will decline at high single-digit percentages compared to low single-digit percentages of retail dollar sales. As a result, BAT's revenue from cigarettes (after subtracting excise tax and retailer margin) shall decline by even less than 3.6% yoy (using the latest 12-week period as a proxy).
With gross margin expansion (COGS is driven by volume, which declines faster than revenue) and operating leverage (more corporate resources and manufacturing capacity allocated from the cigarette segment to the modern oral segment), operating income growth will be a few percentage points higher than revenue growth. It is also worth noting that Altria's MSA payment declined by 20% yoy in Q1 2025, compared to a 13.7% decline in cigarette shipment volume. The larger-than-expected decline in MSA payment was due to the expiration of legal fund, starting from Q4 2024. (Note that MSA payment is both linked to a volume-based payment and a contribution to litigation-related adjustment uncorrelated with volume) I would reckon that BAT is also subject to a similar benefit, though I can't calculate the exact number.
I will not be surprised if BAT reports the fastest operating income growth of the U.S. cigarette segment since H1 2022 (when volume dropped by 13.4% yoy and revenue fell by 3.4% yoy in constant currency). BAT doesn't break down the operating income in the U.S. by segment, but they may offer more colour in their H1 2025 result announcement or earnings conference call.
I think there will be a management change or a active investor stepping up BUT on the other side, I don't think it was that bad, On! slowed, why? Because BAT introduced a new product at unsustainable price, this will too pass.
I mean someone can buy Altria, scrap everything and just focus on the cash and would get the money back in under 10Y
I won't rule out the possibility of a management change. Failed investments in recent years have cost Altria more than USD20bn, including the incremental interest cost burden from costly acquisitions. What if this USD20bn were directed to share buybacks instead? It would reduce share count by 20% based on today's market cap or close to 30% based on the market cap in 2023-24.
I guess On! slowed also because Zyn regained shelf space in Q1 2025, which displaced On! inventory at the retail channel. Based on NielsenIQ data (which measured retail off-take), On! was growing volume by 43.3% in Q1 2025 (12 weeks ending 22 Mar 2025 to be exact), compared to 18% volume growth as reported by Altria (which measured Altria's shipment to wholesalers/distributors/retailers). Therefore, inventory movement reduced the growth rate by approximately 25.3 percentage points.
Shelf space allocated for nicotine products is more or less constant at retail channels such as convenience stores. When PMI floods the channels with ZYN, someone has to cede shelf space. I won't be surprised if BAT reports a lower growth number for Velo compared to NielsenIQ data when it announces its half-year report in July 2025.
$12.8B for JUUL, $1.8B for Cronos, $3.2B for NJOY… soon we’re talking real money! To me they’re a company who never believed in RRPs and cut R&D to the bone to increase margins. On! has been their only decent acquisition.
I even doubt whether Helix Innovations (On!) is considered successful. At the minimum, I want to see On! 's profit contribution offset that ceded by its traditional oral category, owing to competition from Zyn. This is still a moonshot based on the current trajectory. Accountability is not there as they don't even apologise for these epic failures; instead, they just blame external factors. Fortunately, Marlboro is resilient as ever.
Hej Anthony
I had the same guess about on nicotine pouches deaccelerating growth due to ZYN back in the game and you to increase competition from velo +
Which I think is not as bad is it sounds because on nicotin pouches had great price increase
Could you maybe explain in simpler terms how it was possible for the NielsenIQ data to show a the growth rate of over 43% and Altrias shipment to wholesaler of only 18%
I mean if the retailer sold about 43% this would mean they need more new nicotine pouches but in the end they didn't need more nicotine pouches because of the heightened competition and therefore Ultra only sold to wholesalers about 18% due to the fact they don't order more is this the correct reasoning?
Also you are right on the management and they lost money due to failed aquisitions, nevertheless I think NJOY is not a lost case... And also conversely the lower the share price will get the higher the possible return will become if you consider the BuyBacks and reinvestment of the dividends
A few factors contribute to retail off-take (i.e., from retailers to end customers) growing faster than Altria shipments to wholesalers/distributors/retailers:
1. If keeping X dollar amount of On! inventory helps the convenience store generate 10X the dollar amount of revenue per annum, while keeping Y dollar amount of Zyn inventory generates 20Y the dollar amount of revenue per annum, such convenience store will adjust the dollar amount of On! versus Zyn inventories to reach an equilibrium and maximise revenue and return on invested capital.
2. Zyn's selling price is double that of On! For each unit of Zyn sold, two units of On! need to be sold to produce the same revenue for the convenience store. However, one unit of Zyn may occupy similar shelf space as On!, making it unfavourable to allocate more space to On! from retailer profitability perspective
3. Zyn commands a much higher gross margin than On!, potentially giving PMI more room to offer the retailer a higher cut of the product gross margin. For an equal dollar amount of Zyn and On! sold, the convenience store would still earn more gross profit from selling Zyn.
4. During Zyn's supply shortage, many convenience stores wanted to allocate more shelf space to Zyn but could not due to a lack of supply. Some convenience stores didn't even have access to the Zyn supply. In the interim, these convenience stores sold On! and Velo instead, waiting for Zyn supply to normalise. Now that Zyn's supply is normalised, it is logical for them to reduce the inventory level of rival brands to make room for Zyn product in the premium shelf space (e.g., an eye-level area).
5. Retail off-take is growing at 43% year over year without replenishing inventories at the same pace, which could mean convenience stores were effectively reducing their On! inventories to clean up shelf space and display Zyn, a much more profitable product.
Awesome answer!
At least there is like one logic we can apply, ZYN won't be alone in this growing market and will have to share market share .
ZYN is the number 1 in the US but Velo is the number 1 in Europe
It's a thrilling story development in real time
"Cigarette volume decreased -13.7%"
BAT is going to have a bad H1.
Based on the latest Nielsen scanner data through 4/19, BAT's H1 will be within the consensus estimate range if the growth trajectory continues. Interestingly, most of its operating income growth in the U.S. will be driven by its cigarette segment, not vaping or oral nicotine. Note that I define oral nicotine as modern and traditional oral combined, as the growth of modern oral cannibalises traditional oral more directly.
BAT's cigarette dollar sales (as measured by retail off-take, including excise tax) declined by 3.6% yoy for the latest 12-week period and 2.2% yoy for the latest 4-week period. Volume declined by 9.6% yoy for the latest 12-week period and 8.4% yoy for the latest 4-week period. Excise tax and duty payments are linked to volume instead of dollar sales; thus, they will decline at high single-digit percentages compared to low single-digit percentages of retail dollar sales. As a result, BAT's revenue from cigarettes (after subtracting excise tax and retailer margin) shall decline by even less than 3.6% yoy (using the latest 12-week period as a proxy).
With gross margin expansion (COGS is driven by volume, which declines faster than revenue) and operating leverage (more corporate resources and manufacturing capacity allocated from the cigarette segment to the modern oral segment), operating income growth will be a few percentage points higher than revenue growth. It is also worth noting that Altria's MSA payment declined by 20% yoy in Q1 2025, compared to a 13.7% decline in cigarette shipment volume. The larger-than-expected decline in MSA payment was due to the expiration of legal fund, starting from Q4 2024. (Note that MSA payment is both linked to a volume-based payment and a contribution to litigation-related adjustment uncorrelated with volume) I would reckon that BAT is also subject to a similar benefit, though I can't calculate the exact number.
I will not be surprised if BAT reports the fastest operating income growth of the U.S. cigarette segment since H1 2022 (when volume dropped by 13.4% yoy and revenue fell by 3.4% yoy in constant currency). BAT doesn't break down the operating income in the U.S. by segment, but they may offer more colour in their H1 2025 result announcement or earnings conference call.
Good write up
I think there will be a management change or a active investor stepping up BUT on the other side, I don't think it was that bad, On! slowed, why? Because BAT introduced a new product at unsustainable price, this will too pass.
I mean someone can buy Altria, scrap everything and just focus on the cash and would get the money back in under 10Y
BUT ITS complicated
I won't rule out the possibility of a management change. Failed investments in recent years have cost Altria more than USD20bn, including the incremental interest cost burden from costly acquisitions. What if this USD20bn were directed to share buybacks instead? It would reduce share count by 20% based on today's market cap or close to 30% based on the market cap in 2023-24.
I guess On! slowed also because Zyn regained shelf space in Q1 2025, which displaced On! inventory at the retail channel. Based on NielsenIQ data (which measured retail off-take), On! was growing volume by 43.3% in Q1 2025 (12 weeks ending 22 Mar 2025 to be exact), compared to 18% volume growth as reported by Altria (which measured Altria's shipment to wholesalers/distributors/retailers). Therefore, inventory movement reduced the growth rate by approximately 25.3 percentage points.
Shelf space allocated for nicotine products is more or less constant at retail channels such as convenience stores. When PMI floods the channels with ZYN, someone has to cede shelf space. I won't be surprised if BAT reports a lower growth number for Velo compared to NielsenIQ data when it announces its half-year report in July 2025.