For the 1st quarter of 2023, MO reported adjusted EPS of $1.18, which was up 6 cents from the $1.12 reported in the first quarter of 2022. That computes to a 5.4% increase year over year. MO held to their full year 2023 forecast of 3% to 6% EPS growth, or a range of $4.98 to $5.13.

 

Operationally, you could just copy my last couple of quarters recap as all the trends stayed almost identically the same.

 - In cigarettes, the overall industry volumes declined by an estimated 9% in the quarter, with MO doing worse with a drop of 11%. So MO once again lost market share, basically all to the deep discount section of the market, which grew to 28.2% from 26.4% last year, as customers continue to downtrade due to higher prices and a weaker economy. MO again hiked cigarette prices substantially to offset most of the volume loss. For the quarter, MO's revenues (net of excise taxes) in cigarettes/cigars dropped by 1.4% and their operating income was largely flat from last year's first quarter.

 - In smokeless, Copenhagen and Skoal sales continued to drop due to the growth of oral nicotine pouches. MO's brand "on!" grew strongly, but remains well behind PM's Zyn brand which still has over a 70% market share of the oral nicotine category, despite Zyn being sold at a premium price while "on!" remains heavily discounted. Overall, the entire category volume grew by 1% year over year, while MO's volumes declined by 3%, due to the market share loss to Zyn. MO eked out a 2% gain in revenue and operating profit in this segment, but it would have been zero except for favorable wholesaler inventory increases and calendar shipping days.

 

So where did MO generate the 5.4% increase in adjusted EPS from? Mostly from financing due to lower shares outstanding from buybacks made last year, plus lower interest expense as they repaid some debt and also accrued some interest income on the remaining $1.7 billion PM will pay them in the next 3 months under the IQOS agreement. While fine, this will come under some pressure going forward once MO actually spends the $2.75 billion to close on NJOY. 

 

Overall, it's just hard to get excited about MO's prospects. They are already getting squeezed by discount cigarettes and a superior oral nicotine brand in Zyn, and face another big step up in competition from PM's IQOS in a little over 12 months. I think their ability to generate 5% annual EPS growth over the next 5 years (as is their long term forecast) is probably a best case scenario for them.