Altria Group Inc. (MO) delivered adjusted earnings of 55 cents per share in the fourth quarter of 2012, which missed the Zacks Consensus Estimate by a penny. The results exceeded the prior-year quarter results of 50 cents by 10.6%. The upswing in earnings came from sales growth in smokeable products, higher earnings from Altria's equity investment in SABMiller and lower shares outstanding due to buybacks.
Revenue and Margins
Altria’s total revenue went up 1.8% year over year to $6.2 billion in the fourth quarter 2012 on the back of strong revenue growth from smokeable products. Revenues net of excise taxes increased 2.6% to $4.5 billion for the period. Revenue exceeded the Zacks Consensus Estimate by 4.6%.
In the quarter, gross profit increased 0.5% to $2.4 billion compared with the prior-year quarter. Operating companies’ income (operating income after operating expenses are deducted, but before income taxes and interest are deducted shot up 25.5% year over year to $1.8 billion on the back of disciplined cost saving initiatives, under a cost reduction program.
Effective January 1, 2013, the company’s reportable segments will be Smokeable Products, Smokeless Products and Wine. The financial services business and the alternative products business will be reported as All Other category.
Smokeable Products Segment: Net revenue for the smokeable segment went up 2.4% year over year to $5.6 billion, primarily attributable to positive pricing and higher shipment volumes. Revenues net of excise tax went up 3.6% to $3.8 billion.
Furthermore, adjusted operating companies’ income increased 5.9% year over year to $1.5 billion, reflecting higher pricing and cost management in the company. Operating companies income margin inflated 0.9 percentage points to 39.9% from the year ago period.
Shipment volume in the quarter went up 0.4% to 34.1 billion sticks compared with the prior-year quarter, boosted by a 1.2% driven by retail share gains of 1.0% in cigarettes.
Smokeless Products: Net revenue in Smokeless Products increased 7.2% to $448 million, fueled by higher volume and pricing. Revenues net of excise tax went up 6.9% to $418 million.
Furthermore, adjusted operating companies’ income increased 9.5% year over year to $254 million. Smokeless products’ fourth-quarter shipment volume went up 9.6% to 207.4 million units on the back of volume growth in Copenhagen and Skoal brands.
Wine: The segment’s net revenue surged 7.8% to $180 million in the quarter, while revenues net of excise tax went up 8.1% year over year to $173 million.
Adjusted operating companies’ income went up 10.8% to $41 million on the back of higher shipment volume, improved premium mix and higher pricing. Wine shipment volume went up 2.9% to $2.4 million units, driven by expansion in off-premise channels.
Financial Services: Reported and adjusted operating income for the financial services segment in the fourth quarter of 2012 remained flat at $10 million.
For full year 2012 Altria delivered adjusted earnings of $2.21, in line with the Zacks Consensus Estimate. The results exceeded the prior-year quarter results of $2.05 by 7.8%. Full year 2012 results improved due to higher earnings from Altria's equity investment in SABMiller, strong business in the smokeable products segment, lower legal charges related to tobacco and health judgments, and fewer shares outstanding due to share buybacks.
For the full year 2012, revenue went up 5.3% year over year to $17.5 billion. It exceeded the Zacks Consensus Estimate by 0.6%.
Other Financial Update
Altria's cost reduction program for its tobacco and service company subsidiaries, which was announced in the fourth quarter of 2011, remains on track. The program is expected to deliver $400 million in annualized savings by the end of 2013.
Altria repurchased 15.3 million shares at a total cost of approximately $493 million during the fourth quarter of 2012. Altria has approximately $57 million remaining in the ongoing $1.5 billion program, which it expects to complete by the end of the second quarter of 2013.
As of December 31, 2012, Altria held $2.9 billion cash and cash equivalents compared to $2.2 billion as of September 2012. Long term debt as of December 31, 2012 stood at $12.4 billion compared to $13.9 billion in September 2012
Altria reiterates its 2013 earnings guidance in the range of $2.35 to $2.41 per share, representing a growth rate of 6% to 9% from $2.21 per share in 2012.
Headquartered in Richmond, Virginia, Altria engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. Other stocks of consumer staples segment like Flowers Foods Inc. (FLO) – Zacks Rank #1 (Strong Buy) , Procter & Gamble Company (PG) and Kellogg Company (K) - Zacks Rank #2 (Buy) are currently doing well and are worth considering.
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