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Cigarette maker Altria Group Inc.’s (MO - Analyst Report) adjusted earnings of 57 cents per share in the fourth quarter of 2013 missed the Zacks Consensus Estimate of 58 cents by a penny due to lower than expected sales. The results, however, exceeded the prior-year quarter’s results by 3.6%.

Revenues and Margins

Revenues net of excise taxes dropped 1.3% year over year to $4.4 billion for the quarter due to lower sales in the smokeable and smokeless segment. Revenues also missed the Zacks Consensus Estimate of $4.5 billion.

In the quarter, gross profit went up 1.0% to $2.4 billion compared with the prior-year quarter due to lower cost of sales. Operating companies’ income (operating income after operating expenses are deducted, but before income taxes and interest are deducted) increased 2.0% year over year to $1.9 billion on the back of Altria’s cost reduction program.

Segment Details

Smokeable Products Segment: This segment comprises of cigarettes and cigars. Revenues declined 1.8% to $3.8 billion., primarily due to lower shipment volumes.

Shipment volume in the quarter declined 5.7% to 32.2 billion units compared with the prior-year quarter, primarily due to decline in cigarette shipment volume.

While market share of Marlboro and L&M brands gained during the quarter, Black & Mild reported a decline in market share during the quarter.

Adjusted operating companies’ income increased 3.6% year over year to $1.6 million, reflecting higher pricing. Operating companies’ income margins inflated 2.2 percentage points (pp) to 42.1% during the quarter.

Smokeless Products: Revenues declined 1.7% to $411 million due to higher promotional spending in popular priced products and lower shipment volume.

Smokeless products’ fourth-quarter shipment volume slipped 4.3% to 198.3 million units mainly due to one less shipping day in the quarter and lower shipment volume of Copenhagen and Skoal.

Although Copenhagen gained retail share during the quarter, Skoal witnessed a slight decrease primarily due to competitive activity and Copenhagen’s strong performance

Furthermore, adjusted operating companies’ income increased 1.2% year over year to $257 million backed by improved volume and pricing. Operating companies’ income margins 1.7 percentage points (pp) to 62.5%.

Wine: The segment’s revenues went up 10.4% year over year to $191 million on the back of higher pricing and shipment volume. Wine shipment volume increased 5.8% to $2.6 million units, due to higher distribution of 14 Hands brand.

Adjusted operating companies’ income went up 9.8% to $45 million on the back of positive pricing. Operating Income margins shrank 0.1 pp to 23.6%.

Fiscal Results

For the fiscal year 2013 adjusted earnings of $2.38 per share in the fiscal year 2013 missed the Zacks Consensus Estimate of $2.39 by a penny. However, the results exceeded the prior-year quarter’s results by 7.7%. Earnings were in line with management’s guidance of a range of $2.36 - $2.41.

Revenues net of excise taxes inched up 0.9% to $17.7 billion for the fourth quarter as higher sales in the smokeless and wine segments were partially offset by lower sales in the smokeable segment. Revenues, however, missed the Zacks Consensus Estimate of $17.8 billion.

Other Financial Update

During the fourth quarter of 2013, Altria repurchased approximately 6.8 million shares of for a total cost of approximately $252 million.


Altria issued 2014 earnings guidance. It expects earnings to be in the range of $2.52 to $2.59, up 6% to 9% from $2.38 in 2013.

Altria expects 2014 earnings to benefit from lower interest expense, a lower effective tax rate and a reduction in shares from the current share repurchase program.

The Zacks Consensus Estimate for first quarter fiscal 2014 and fiscal 2014 is pegged at 57 cents and $2.57.

Altria expects capital expenditures for 2014 to be in the range of $150 million to $200 million and depreciation and amortization to be approximately $220 million.

Headquartered in Richmond, Virginia, Altria engages in the manufacture and sale of cigarettes, smokeless products and wine in the United States and internationally and carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the tobacco sector are Reynolds American Inc. (RAI - Analyst Report) and Lorillard Inc. (LO - Analyst Report) carrying a Zacks Rank #2 (Buy). Another stock in the consumer retail sector worth considering is Michael Kors Holdings Ltd (KORS - Analyst Report) carrying a Zacks Rank #2 (Buy)

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