What's Driving Altria Group's Growth in OCI for Smokeables?

Altria Group, Inc.’s (MO) second-quarter 2025 results showed resilience in its smokeable products segment, where adjusted operating companies income (“OCI”) margins expanded 2.9 percentage points to 64.5%. For the first half, adjusted OCI margins rose an even stronger 3.5 percentage points, also reaching 64.5%. This gain came even as domestic cigarette shipment volumes fell 10.2% in the second quarter, reflecting industry declines linked to the growth of flavored disposable e-vapor products and ongoing pressure on adult tobacco consumer discretionary income.

The margin improvement was fueled primarily by strong net price realization of 10% in the second quarter and 10.4% for the first half, a lever Altria has leaned on consistently to offset volume declines. Lower per-unit settlement charges provided additional relief, while lower operating costs contributed further efficiency gains. Collectively, these factors more than offset the drag from shrinking shipment volumes.

This combination allowed Altria to generate greater profitability from a smaller sales base. Even as cigarette consumption continued to contract, the company converted fewer sticks sold into higher operating income. The margin expansion underscores that Altria’s smokeables profitability is supported less by volume trends and more by financial levers such as pricing, settlement relief and expense management. In a marketplace challenged by consumer trade-downs and rising e-vapor adoption, these measures remain central to sustaining earnings performance despite falling cigarette demand.

Altria Peer Check

Philip Morris International Inc. (PM) continues to demonstrate that pricing power remains a central engine of its profitability. In the second quarter of 2025, Philip Morris delivered organic net revenue growth of 6.8% and organic adjusted operating income growth of 14.9%. Notably, Philip Morris’ organic revenue growth was driven by higher combustible tobacco pricing and favorable volume/mix from smoke-free products.

Meanwhile, Turning Point Brands, Inc. (TPB) underscored margin resilience in the second quarter of 2025, with consolidated gross margin up 310 basis points to 57.1%. The improvement was fueled by a favorable mix. The Stoker’s segment also delivered a strong performance, with gross margin rising 750 basis points from the prior year to 62.5%. These results highlight how product mix and pricing discipline continue to support profitability in a contracting combustible market.

MO’s Price Performance, Valuation & Estimates

Shares of Altria have gained 14.2% in the past month compared with the industry’s growth of 9.2%.

From a valuation standpoint, MO trades at a forward price-to-earnings ratio of 12.18X, down from the industry’s average of 15.4X.

The Zacks Consensus Estimate for MO’s 2025 and 2026 earnings per share has inched up 2 cents each in the past 30 days to $5.39 and $5.55, respectively.

Altria currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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