A month has gone by since the last earnings report for Altria (MO). Shares have lost about 15.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Altria due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Altria's Q4 Earnings Beat Estimates, Revenues Down Y/Y
Altria Group released fourth-quarter 2019 results. Adjusted earnings came in at $1.02 per share, which rose 7.4% year over year and beat the Zacks Consensus Estimate by a penny. The uptick can be attributed to increased adjusted operating companies income (OCI) in the smokeable and smokeless product segments and higher adjusted earnings from the company’s equity investment in AB InBev. These were partly offset by elevated interest expenses.
Net revenues dipped 1.8% year over year to $6,007 million. Revenues, after deducting excise taxes, remained almost flat at $4,802 million. The consensus mark was $4,897 million. Revenues were hurt by softness in the smokeable unit, which was somewhat compensated by an increase in smokeless product revenues.
Gross profit in the quarter advanced 5.5% to $3,084 million from the prior-year quarter. Notably, reported OCI increased 29.9% to 2,488 million and operating income rose 39.2% to $2,427 million.
Smokeable Products: Net revenues in the category fell 2.7% year over year to $5,159 million due to lower shipment volumes, partly offset by higher pricing and reduced promotional investments. Revenues, net of excise taxes, dipped 0.5% year over year to $3,991 million.
Reported domestic cigarette shipment volumes decreased 8.7% year over year due to adverse trade inventory movements, the cigarette industry’s rate of decline and retail share losses. During the quarter, the company’s total cigarette retail share declined 0.4 percentage point to 49.5%. Meanwhile, reported cigar shipment volumes rose 4.6%. Adjusted OCI in the segment improved 10.1% to $2,187 million, owing to better pricing as well as reduced costs and promotional spending. Adjusted OCI margins rose 5.3 percentage points to 54.8%.
Smokeless Products: Net revenues in the segment improved 5.8% from the year-ago quarter to $605 million, driven by higher pricing and reduced promotional investments. These were partially countered by lower shipment volumes. Revenues, net of excise taxes, increased 6.1% to $574 million in the quarter.
Domestic shipment volumes for the segment fell 4% due to the industry’s rate of decline, retail share losses and calendar differences, among other factors. Total smokeless products retail share went down 0.1 percentage point to 53.9%. Adjusted OCI rose 9.7% to $395 million, owing to improved pricing, reduced promotional investments and lower costs. These were partially offset by lower shipment volumes. Adjusted OCI margin expanded 2.3 percentage points to 68.8%.
Wine: Net revenues climbed 2% year on year to $206 million, owing to increased shipment volumes. The segment’s revenues, net of excise taxes, also increased 2% to $200 million. Reported wine shipment volumes grew 2.6% to about 2.4 million cases. Adjusted OCI in the category declined 25.8% to $23 million as a result of escalated costs. Adjusted OCI margin contracted 4.3 percentage points to 11.5%.
In 2019, Altria repurchased 16.5 million shares for nearly $845 million. As of Dec 31, 2019, the company had shares worth $500 million remaining under its ongoing repurchase plan of $1 billion. The program is expected to conclude by the end of 2020. Apart from this, the company anticipates maintaining a dividend payout ratio of nearly 80% of adjusted earnings per share from 2020 through 2022. Capital expenditures in 2020 are envisioned in the range of $225-$275 million.
Other Developments & Guidance
Management remains pleased with its 2019 results, wherein core tobacco businesses delivered a solid performance. Also, the company exceeded its savings target and hiked dividends for the 54th time. Markedly, Altria generated annualized cost savings of $600 million during 2019, surpassing its Cost Reduction Program target of $575 million.
Additionally, the company made considerable progress in its noncombustible business platform despite the challenges related to its investment in JUUL. Growth in the noncombustible business was backed by the launch of IQOS as well as the commercialization of on! Further, the company continues to make increased investments associated with the commercialization of IQOS as well as the expansion of on!’s U.S. distribution.
Considering the aforementioned investments, management expects adjusted earnings of $4.39-$4.51 per share that suggests 4-7% year-over-year growth. Further, Altria expects the domestic cigarette industry’s adjusted volumes to decline 4-6% in 2020. Also, it expects 2020 adjusted effective tax rate of 23.5-24.5%.
Altria now expects to achieve compounded annual adjusted earnings growth of 4-7% during 2020-2022, down from the previously guided range of 5-8%. This can be accountable to expectations of no equity earnings contribution from JUUL till 2022.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a flat path over the past two months.
At this time, Altria has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Altria has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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