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Analyst Blog

On Jun 11, 2014 we issued an updated research report on tobacco maker Altria Group Inc. .

Altria reported mixed results for the first quarter fiscal 2014 on Apr 24. The Marlboro owner’s first-quarter earnings were in line with the Zacks Consensus Estimate but surpassed year-ago results by 5.6% due to strong pricing. However, sales missed the Zacks Consensus Estimate but inched past year-ago results by 0.9% as poor revenues in the Smokeable segment offset gains in the smokeless category. The company has been delivering lower-than-expected volume for several quarters due to a general shift away from tobacco products amid accelerating prices of cigarettes and worldwide anti-tobacco campaigns. Moreover, higher fees associated with litigations and the anti-smoking campaigns are significant overhangs.

However, we commend Altria’s ability to maintain leading positions in all the categories. The tobacco giant leads cigarettes category with Marlboro, machine-made large cigars category with Black & Mild and smokeless tobacco category with Copenhagen and Skoal brands.

Moreover, it is investing continuously in improving the architecture of its brands. In fiscal 2013, Marlboro launched Southern Cut in the Gold family and Marlboro Edge in the Marlboro Black family. During the same period, Altria began implementing strategies to enhance smokeless brand Skoal's equity and carefully manage price gaps in select geographies.

Altria is also geared to bolster its presence in the e-cigarette category. After the successful launch of its flagship e-cigarette brand MarkTen in Indiana and Arizona in fiscal 2013, Altria plans its national rollout in fiscal 2014.

Moreover, Altria is optimistic for the fiscal year and expects 2014 earnings to benefit from a decline in interest expense, effective tax rate and share count (due to aggressive share buybacks). For fiscal 2014, Altria expects earnings in the range of $2.52 to $2.59, up 6% to 9% from $2.38 in 2013.

Key Picks from the Sector

Altria carries a Zacks Rank #3 (Hold). Other stocks to consider in the retail sector include Dr Pepper Snapple Group, Inc. , The WhiteWave Foods Company and Unilever plc (). All these stocks carry a Zacks Rank #2.

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