Altria's (MO) Q2 Earnings Meet Estimates, Revenues Down Y/Y
Altria Group Inc. MO delivered second-quarter 2023 results, with the bottom line increasing year over year, and the top line decreasing. Altria continued to benefit from robust pricing, whereas soft domestic shipment volumes, especially in the smokeable product segment, remained a downside.
Management stated that the overall cigarette industry has been bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. However, Altria’s leading tobacco brands showed resilience. Also, the company’s focus on “Moving Beyond Smoking” has been aiding.
Quarter in Detail
Adjusted earnings came in at $1.31 per share, which jumped 4% year over year and matched the Zacks Consensus Estimate. The year-over-year increase was backed by the reduced number of shares outstanding, partly negated by a decline in the net periodic benefit income.
Altria Group, Inc. Price, Consensus and EPS Surprise
Altria Group, Inc. price-consensus-eps-surprise-chart | Altria Group, Inc. Quote
Net revenues fell 0.5% year over year to $6,508 million, mainly due to reduced net revenues in the smokeable product unit. After deducting excise taxes, revenues were up 1.2% to $5,438 million. The Zacks Consensus Estimate for revenues was pegged at $5,447 million.
Segment Details
Smokeable Products: Net revenues in the category decreased 0.9% year over year to $5,820 million due to the reduced shipment volume and increased promotional investments, partly compensated by greater pricing. Revenues, net of excise taxes, climbed 0.9%.
Domestic cigarette shipment volumes tumbled 8.7%, mainly due to the industry’s decline rate and retail share losses, partly countered by trade inventory movements. The industry’s decline and retail share losses were a result of macroeconomic pressure on ATC’s disposable income.
On adjusting for trade inventory movements and other factors, the total estimated domestic cigarette industry volume fell an estimated 7.5%. Altria’s reported cigar shipment volumes rose 7.6%.
Adjusted OCI in the segment increased 3.1% to $2,886 million, with higher pricing being offset by reduced shipment volumes, elevated promotional investments, escalated costs and increased per-unit settlement charges. Adjusted OCI margins grew 1.3 percentage points to 60.4%.
Oral Tobacco Products: Net revenues in the segment rose 2.3% from the year-ago quarter’s level to $680 million. The upside can be attributed to improved pricing, partly negated by the increased percentage of on! shipment volumes relative to MST (compared with the year-ago period), reduced shipment volumes and elevated promotional investments. Revenues, net of excise taxes, grew 2.8%.
Domestic shipment volumes fell 1.7%, mainly due to retail share losses. This was somewhat offset by the industry’s growth rate, calendar differences and trade inventory movements. On adjusting for calendar differences and trade inventory movements, the oral tobacco product segment’s shipment volume declined by an estimated 2.5%.
Adjusted OCI rose 3% to $443 million, mainly due to increased pricing, somewhat negated by the changed mix, reduced shipment volumes and increased promotions. Adjusted OCI margins climbed 0.1 percentage point to 68%.
Other Updates
On Jun 1, 2023, Altria concluded the buyout of NJOY Holdings Inc. for $2.75 billion. Management remains committed to implementing its commercial agenda for NJOY in the second half of 2023.
Altria ended the quarter with cash and cash equivalents of $874 million, long-term debt of $24,074 million and a total stockholders’ deficit of $3,827 million.
The company repurchased 10.4 million shares for $472 million in the second quarter of 2023. As of Jun 30, 2023, Altria had shares worth $528 million remaining under its repurchase program, which is anticipated to be concluded by Dec 31, 2023.
In the second quarter, the company paid out dividends of $1.7 billion. In the first half of 2023, it paid out dividends worth $3.4 billion.
Guidance
Altria reiterated its guidance for 2023. The company envisions the adjusted EPS in the range of $4.89-$5.03, suggesting growth of 1-4% from the $4.84 recorded in 2022.
As the external landscape remains dynamic, MO continues assessing economic factors like elevated inflation, higher interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income.
The bottom-line view also considers planned investments associated with costs to improve the digital consumer engagement system, and enhanced smoke-free product research, development and marketplace activities to support MO’s smoke-free products.
Shares of this Zacks Rank #3 (Hold) company have risen 3.6% in the past year against the industry’s decline of 0.6%.
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