Altria (MO) Q1 Earnings & Revenues Beat, 2016 View Intact

Altria Inc.’s MO adjusted earnings of 72 cents per share in the first quarter of 2016 beat the Zacks Consensus Estimate of 68 cents by 5.9%. Earnings also exceeded the prior-year quarter figure by 14.3% backed by strong performance of the core tobacco business and the leading premium brands.

Revenues and Margins

Net revenue increased 4.5% year over year to $6.1 billion backed by higher sales across all the segments. Revenues net of excise taxes increased 6% year over year to $4.5 billion and beat the Zacks Consensus Estimate of $4.47 billion by a nominal 0.1%.

Supported by lower excise tax levied on products, gross profit went up 7.3% from the year-ago quarter to $2.65 billion. Operating income increased 5.98% to $2.04 billion.

Segment Details

Smokeable Products Segment: Net revenue increased 3.8% year over year to $5.42 billion driven by higher pricing, partly offset by lower shipment volumes. Revenues net of excise taxes increased 5.3% to $3.92 billion.

Shipment volume inched up 1.2% year over year to 29.86 billion units.

While cigarettes’ retail share gained 0.3 percentage point (pp) backed by higher gains in  Discount brands, retail share for cigars declined 0.5 pp due to lower shares at the Discount brand. Marlboro’s retail share remained flat year over year at 44%.

Smokeless Products: Revenues gained 11.4% to $479 million on the back of higher pricing, partially offset by higher promotional investments. Revenues net of excise taxes increased 12.3% to $447 million.

Smokeless Products’ shipment volume increased 7.8% to 206.1 million units buoyed by an 8.7% rise in Copenhagen and Skoal shipment volumes. Copenhagen brand’s retail share increased 1.1 pp, while Skoal witnessed a 0.6 pp dip.

Wine: The segment’s revenues went up 8.2% year over year to $145 million, thanks to higher shipments. Revenues net of excise taxes increased 8.5% year over year to $140 million.

Wine shipment volume increased 8.1% to 1.85 million units, driven by higher shipments of Ste. Michelle and 14 Hands brands.

Outlook

Altria maintained its 2016 outlook. The company expects adjusted earnings per share in the range of $3.00 to $3.05. This range represents a growth rate of 7% to 9% from the adjusted diluted EPS figure of $2.80 posted in 2015.

Altria expects full-year effective tax rate at around 35.3%.

Financial Updates

During the first quarter, Altria repurchased 2.8 million shares for a total of $168 million. The company paid over $1.1 billion in dividends in the first quarter.

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 lead markets.

Productivity Initiative

In Jan 2016, Altria announced the implementation of an initiative that is expected to deliver 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 & Other Stocks to Consider

Altria has a Zacks Rank #2 (Buy). Other favorably ranked stocks in the tobacco industry include Reynolds American Inc. RAI and Philip Morris International Inc. PM. While Reynolds sports a Zacks Rank #1 (Strong Buy), Philip Morris carries a Zacks Rank #2. Another well-ranked stock in the broader consumer staples sector is Sanderson Farms Inc. SAFM with a Zacks Rank #2.

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