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How Did Altria’s Smokeless Products Segment Perform in 1Q16?

Penny Morgan

How Altria Group Beat Earnings and Sales Estimates in 1Q16

(Continued from Prior Part)

Smokeless tobacco’s revenue and operating income

Altria Group’s (MO) smokeless tobacco product segment’s net revenue rose 11.4% in 1Q16 to $0.5 billion versus $0.4 billion in 1Q15. This was the highest rise among MO’s three segments.

The rise was due to higher pricing and higher volumes, and it was partially offset by higher promotional investments. The smokeless product segment’s net revenue of excise taxes rose 12.3%.

The segment’s reported operating income rose 11.6% to $0.3 billion. This was due to higher pricing and higher volumes, which were partially offset by restructuring costs in connection with productivity initiatives and higher promotional investments by Altria’s Nu Mark subsidiary.

Excluding asset impairment and exit costs of $13 million, adjusted operating income rose 16.7% for smokeless products in 1Q16.

Shipment volume and retail share

Benefited by Copenhagen and Skoal, the smokeless tobacco segment’s reported domestic shipment volume rose 7.8% in 1Q16. However, this rise was offset by falls in its other portfolio brands. Combined reported shipment volumes of Copenhagen and Skoal rose 7.8%, driven by the national expansion of Copenhagen Mint.

Despite higher pricing and higher volumes, Skoal’s retail (XRT) share fell 0.6 share points. However, the total retail share of smokeless products rose by 0.2 points to 55.1% in 1Q16. Copenhagen and Skoal’s combined retail share rose by 0.5 points to 51.6% in 1Q16.

Peers in the smokeless products segment

Peers Reynolds American (RAI), Imperial Tobacco (ITYBY), and Japan Tobacco (JAPAF) (JAPAY) also produce smokeless tobacco products. Reynolds American’s subsidiary American Snuff Company produces moist snuff brands including Grizzly and Kodiak. Imperial Tobacco’s and Japan Tobacco’s smokeless tobacco products are Skruf Snus and Zerostyle Mint, respectively.

Other companies such as British American Tobacco (BTI) and Philip Morris International (PM) don’t have presences in the smokeless tobacco segment.

Focus on expansion

Altria’s subsidiary, the U.S. Smokeless Tobacco Company, continues to expand Copenhagen Mint nationally with strong brand awareness and a trial generating plan. According to CEO Martin J. Barrington, Copenhagen has the essence of authenticity, masculinity, and craftsmanship, which allows the brand to compete with other smokeless brands.

MO makes up 0.2% of the iShares Morningstar Multi-Asset Income ETF (IYLD).

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