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Investing.com -- S&P Global Ratings has upgraded Altria Group (NYSE:MO) Inc.’s credit rating to ’BBB+’ from ’BBB’ due to the company’s strong credit metrics, profitability, and cash flow. The short-term rating of ’A-2’ was also affirmed, with the outlook remaining stable.
The Richmond, Va.-based tobacco company has shown consistent performance, primarily driven by the pricing power of its traditional tobacco products, and a solid commitment to its financial policy. Altria is also making strides in enhancing its next-generation smokeless product pipeline, which includes refining its e-vapor strategy and introducing an upgraded nicotine pouch product. However, many of these initiatives are estimated to be one to three years or more from realization.
Earlier this year, Altria’s NJOY ACE e-vapor product was removed from the market due to a patent dispute, resulting in an $873 million goodwill impairment. The company is reassessing its U.S. smoke-free targets contained in its 2028 Enterprise Goals, largely due to the ongoing influx of illicit-flavored disposable e-vapor products, primarily imported from China.
Despite industry challenges, S&P Global Ratings expects Altria to maintain solid credit metrics over the next few years. The stable outlook is based on the anticipation that Altria will sustain its industry-leading operating profit margin and leverage in the low-2x area, despite declines in combustible cigarette and moist smokeless tobacco volumes. This is expected to enable the company to generate strong free operating cash flow (FOCF) and continue its efforts to develop a competitive next-generation smokeless product portfolio.
S&P Global Ratings also anticipates that Altria’s credit metrics will remain well below the potential downgrade trigger over the next two years. This is primarily due to the company’s strong brand pricing power and its commitment to financial policies. The forecast assumes that the S&P Global Ratings-adjusted EBITDA margin percentage will remain very high (62.0%-62.5%, compared with 60% in 2024) despite a continued 10%-12% decline in smokeable products’ volume, leading to lower net revenues.
Altria’s commitment to financial policies is also reflected in its target of a company-defined debt-to-consolidated EBITDA ratio of approximately 2.0x. As of March 31, 2025, the actual ratio stood at 2.1x, compared to 2.0x S&P Global Ratings-adjusted leverage.
The removal of NJOY ACE from the market has been a setback for Altria’s efforts to develop a competitive next-generation smokeless product portfolio. Despite this, Altria is expected to continue working on bringing a competitive e-vapor product to the market and investing in other next-generation smokeless products.
Altria has seen positive results with its On! nicotine pouch brand, which holds an 8.8% share of the oral tobacco category and is the second-largest nicotine pouch brand in the U.S. The company also plans to make several moves with respect to next-generation smokeless products, including the filing of a Premarket Tobacco Product Application (PMTA) for NJOY ACE 2.0 Blueberry and Watermelon with Bluetooth-enabled access restriction technology submission, among others.
The stable outlook is based on the expectation that Altria will maintain its industry-leading operating profit margin and sustain S&P Global Ratings-adjusted leverage in the low-2x area, despite significant combustible cigarette and moist smokeless tobacco volume declines.
S&P Global Ratings could lower the rating within the next 24 months if there are significant changes in Altria’s business risk, such as a significant shift in consumer demand to legal or illicit next-generation smokeless products, continued large combustible cigarette volume declines, or unexpected material regulatory or litigation setbacks. The rating could also be lowered if the company deviates from current financial policies and makes large debt-financed acquisitions or share buybacks that result in S&P Global Ratings-adjusted leverage sustained at or above 3x.
While it is highly unlikely within the next 24 months, S&P Global Ratings could raise the rating if the company successfully develops a competitive next-generation smokeless product portfolio while maintaining industry-leading profitability, and adheres to its existing financial policy commitment, such that S&P Global Ratings-adjusted leverage is maintained below 2.5x.
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