Altria (MO) Beats Q3 Earnings, Revenues; Maintains FY View
Altria Inc.’s MO third-quarter 2016 adjusted earnings of 82 cents per share beat the Zacks Consensus Estimate of 81 cents by a penny. Earnings also increased 9.3% year over year driven by a strong performance of the core tobacco business and the leading premium brands.
Revenues and Margins
Net revenue dipped 3.1% to $6.9 billion backed by higher sales across all segments. Revenues net of excise taxes gained 4.3% year over year to $5.2 billion. The top line also beat the Zacks Consensus Estimate of $5.12 billion by 1.6%.
ALTRIA GROUP Price, Consensus and EPS Surprise
ALTRIA GROUP Price, Consensus and EPS Surprise | ALTRIA GROUP Quote
Supported by lower excise tax levied on products, gross profit increased 3.4% year over year to $3.15 billion. Operating income advanced 3.3% to $2.38 billion.
Segment Details
Smokeable Products Segment: Net revenue inched up 1.8% year over year to $6.15 billion backed by higher pricing. Revenues net of excise taxes gained 2.7% to $4.47 billion.
Shipment volume decreased 0.9% year over year to 33.23 billion units.
Cigarettes retail market share inched up by 0.1 percentage points (pp) year over year as higher gains in Marlboro and Discount brands were offset by lower shares in Other Premium brands. Marlboro’s retail share was up by 0.1 pp to 44.0%.
Retail share for cigars dipped 1.3 pp due to lower shares at the Black and Mild brand.
Smokeless Products: Revenues jumped 9.5% to $528 million supported by higher pricing, partially neutralized by increased promotional investments. Revenues net of excise taxes increased 10.0% to $493 million during the quarter.
Smokeless Products’ shipment volume increased 5.6% to 216.4 million units buoyed by a 6.6% surge in Copenhagen and Skoal shipment volumes.
Smokeless Product’s retail share grew 0.9 pp year over year to 55.9%. Copenhagen brand’s retail share increased 2.7 pp, whereas Skoal witnessed a 1.5 pp dip.
Wine: The segment’s revenues went up 9.6% year over year to $182 million owing to higher shipments. Revenues net of excise taxes increased 9.3% year over year to $176 million.
Wine shipment volume rose 6.3% to 2.3 million units driven by higher shipments of Ste. Michelle brand.
Outlook
Altria reiterated its fiscal 2016 guidance. It now expects its 2016 adjusted EPS to be in a range of $2.98 to $3.04. The guidance represents a growth of 6.5% to 8.5% from 2015.
Financial Updates
Anheuser-Busch InBev took over SABMiller on Oct 10, 2016. Altria received a 9.6% ownership of AB InBev, and approximately $5.3 billion in pre-tax cash as per the terms of the acquistion. Altria anticipates incurring a pre-tax gain of approximately $13.7 billion, or $4.55 per share, effective in fourth-quarter 2016.
During the third quarter, Altria repurchased 2.6 million shares for a total of $171 million.
In Aug 2016, Altria announced an 8% hike in its quarterly dividend to 61 cents per share. The new dividend was paid on Oct 11 to shareholders on record as of Sep 15, 2016. The annualized dividend now amounts to $2.44 per share with a dividend yield of 3.7%, based on Altria’s closing price of $66.33 as of Aug 19, 2016. Last year, the company increased its dividend by 8.7%.
As of Sep 30, 2016, Altria had $2.29 cash and cash equivalents compared with $891 billion as of Jun 30, 2016. Long-term debt was $13.87 billion as against $12.83 billion as of Jun 30, 2016.
Consolidation of Manufacturing Facilities
During the third quarter conference call, Altria announced that it will consolidate several of its manufacturing facilities to streamline operations and achieve greater efficiencies. The consolidation, scheduled to be completed by first-quarter 2018 is expected to deliver approximately $50 million in cost savings by the end of 2018.
E-Vapor Category in Focus
Altria’s subsidiary Nu Mark LLC (Nu Mark) stepped up the distribution of MarkTen XL and Green Smoke e-vapor products across several markets.
Productivity Initiative
In Jan 2016, Altria announced the implementation of an initiative for approximately $300 million in annual productivity savings by the end of 2017. Part of the savings is to be realized through reduced spending on certain infrastructure and will be invested in brand building and regulatory capabilities. Such initiatives are expected to help the company reap higher profits over the long term.
Zacks Rank
Altria has a Zacks Rank #3 (Hold). In order to combat macro issues, the company, along with other tobacco majors like Philip Morris International Inc. PM, British American Tobacco BTI and Reynolds American Inc. RAI, is focusing on the growth of the alternative tobacco product category. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ALTRIA GROUP (MO): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis Report
REYNOLDS AMER (RAI): Free Stock Analysis Report
BRITISH AM TOB (BTI): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
