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Behind the Smoke & Fire of Tobacco Stock Q2 Earnings
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The Q2 earnings season has been mixed across the sectors. Almost 95% of S&P 500 members have reported Q2 earnings so far. Per the Zacks Earnings Trends report 71.7% of these companies beat EPS estimates and 53.8% outpaced top-line expectations in Q2.
The Q2 earnings season is critical for investors to ascertain the most attractive picks. Though the market has somewhat stabilized now, investors have become jittery after Brexit, which shook the global economy in Jun 2016. Further, the uncertainty surrounding the interest rate hike by Fed has made investors cautious about the stock market. Amid these macroeconomic uncertainties, investors are resorting to safe haven stocks. In such a scenario, the consumer staples sector might be quite reliable.
Tobacco sector in particular has always been interesting for investors, as these sinful stocks always yield handsome returns for the portfolio. Since people smoke both during times of recession as well as economic growth, such stocks are sometimes valued at a higher premium than companies that are more sensitive to economic trends. As a result, these stocks always benefit from the addictive nature of their products.
Tobacco biggies have continued to generate higher margins in Q2 backed by positive pricing and addictive products. In addition, the tobacco companies are focusing on alternative tobacco products as well as e-cigarettes and vapor products which were received well by customers during the quarter.
However, the sector has been exposed to aggressive anti-tobacco campaigns globally. Governments around the world are imposing restrictions on tobacco companies regarding packaging, advertising and marketing campaigns and imposing higher excise tax on these products. As a result, the tobacco bigwigs are experiencing depleting volumes, which in turn, are adversely affecting their top line.
Let us now have a look at 4 tobacco stocks and see how they have fared in Q2 season.
Altria Group Inc.(MO - Free Report) : This Zacks Rank #3 (Hold) company’s Q2 earnings of 81 cents per share surpassed the Zacks Consensus Estimate by 1.25% and also increased from the prior-year quarter figure by 9.5% on strong performance by its leading premium brands in the core tobacco category. However, sales dipped 1.4% year over year and also missed the Zacks Consensus Estimate by 2.58% due to lower shipment volume of cigarettes. The company is optimistic about the coming year and raised its full-year view during the quarter. Earnings guidance for 2016 represents a growth of 7.5–9.5% from the adjusted diluted earnings per share of $2.80 posted in 2015.
Philip Morris International Inc.(PM - Free Report) , which also carries a Zacks Rank #3, reported lower-than-expected Q2 earnings. The bottom line also declined 5% year over year due to soft sales. Revenues also missed our estimates and dipped 3.1% year over year. However, both the top line and the bottom line showed significant year-over-year improvement on a constant currency basis. Overall, the company’s strong portfolio of tobacco brands and pricing power are encouraging. Its Heatsticks and IQOS product category are gaining popularity in test markets.
Reynolds American Inc.’s adjusted Q2 earnings of 61 cents per share missed the Zacks Consensus Estimate by almost 5% due to lower-than-expected volume to tobacco products. However, earnings improved 13.7% year over year on higher cigarette and moist snuff pricing. Net sales also missed our estimates but soared 33% year over year on strong performance across both smokeable and smokeless categories. The company raised the lower end of its full-year earnings guidance to reflect the robust year-over-year performance.
Another tobacco giant, Vector Group Limited (VGR - Free Report) , reported weaker-than-expected earnings during Q2. Earnings of 20 cents per share missed consensus mark by 9.09%. Sales, however, surpassed estimates by 1.7%. Notably, both the top line and the bottom line surpassed the year-ago results.
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Behind the Smoke & Fire of Tobacco Stock Q2 Earnings
The Q2 earnings season has been mixed across the sectors. Almost 95% of S&P 500 members have reported Q2 earnings so far. Per the Zacks Earnings Trends report 71.7% of these companies beat EPS estimates and 53.8% outpaced top-line expectations in Q2.
The Q2 earnings season is critical for investors to ascertain the most attractive picks. Though the market has somewhat stabilized now, investors have become jittery after Brexit, which shook the global economy in Jun 2016. Further, the uncertainty surrounding the interest rate hike by Fed has made investors cautious about the stock market. Amid these macroeconomic uncertainties, investors are resorting to safe haven stocks. In such a scenario, the consumer staples sector might be quite reliable.
Tobacco sector in particular has always been interesting for investors, as these sinful stocks always yield handsome returns for the portfolio. Since people smoke both during times of recession as well as economic growth, such stocks are sometimes valued at a higher premium than companies that are more sensitive to economic trends. As a result, these stocks always benefit from the addictive nature of their products.
Tobacco biggies have continued to generate higher margins in Q2 backed by positive pricing and addictive products. In addition, the tobacco companies are focusing on alternative tobacco products as well as e-cigarettes and vapor products which were received well by customers during the quarter.
However, the sector has been exposed to aggressive anti-tobacco campaigns globally. Governments around the world are imposing restrictions on tobacco companies regarding packaging, advertising and marketing campaigns and imposing higher excise tax on these products. As a result, the tobacco bigwigs are experiencing depleting volumes, which in turn, are adversely affecting their top line.
Let us now have a look at 4 tobacco stocks and see how they have fared in Q2 season.
Altria Group Inc.(MO - Free Report) : This Zacks Rank #3 (Hold) company’s Q2 earnings of 81 cents per share surpassed the Zacks Consensus Estimate by 1.25% and also increased from the prior-year quarter figure by 9.5% on strong performance by its leading premium brands in the core tobacco category. However, sales dipped 1.4% year over year and also missed the Zacks Consensus Estimate by 2.58% due to lower shipment volume of cigarettes. The company is optimistic about the coming year and raised its full-year view during the quarter. Earnings guidance for 2016 represents a growth of 7.5–9.5% from the adjusted diluted earnings per share of $2.80 posted in 2015.
ALTRIA GROUP Price, Consensus and EPS Surprise
ALTRIA GROUP Price, Consensus and EPS Surprise | ALTRIA GROUP Quote
Philip Morris International Inc.(PM - Free Report) , which also carries a Zacks Rank #3, reported lower-than-expected Q2 earnings. The bottom line also declined 5% year over year due to soft sales. Revenues also missed our estimates and dipped 3.1% year over year. However, both the top line and the bottom line showed significant year-over-year improvement on a constant currency basis. Overall, the company’s strong portfolio of tobacco brands and pricing power are encouraging. Its Heatsticks and IQOS product category are gaining popularity in test markets.
PHILIP MORRIS Price, Consensus and EPS Surprise
PHILIP MORRIS Price, Consensus and EPS Surprise | PHILIP MORRIS Quote
Reynolds American Inc.’s adjusted Q2 earnings of 61 cents per share missed the Zacks Consensus Estimate by almost 5% due to lower-than-expected volume to tobacco products. However, earnings improved 13.7% year over year on higher cigarette and moist snuff pricing. Net sales also missed our estimates but soared 33% year over year on strong performance across both smokeable and smokeless categories. The company raised the lower end of its full-year earnings guidance to reflect the robust year-over-year performance.
REYNOLDS AMER Price, Consensus and EPS Surprise
REYNOLDS AMER Price, Consensus and EPS Surprise | REYNOLDS AMER Quote
Another tobacco giant, Vector Group Limited (VGR - Free Report) , reported weaker-than-expected earnings during Q2. Earnings of 20 cents per share missed consensus mark by 9.09%. Sales, however, surpassed estimates by 1.7%. Notably, both the top line and the bottom line surpassed the year-ago results.
VECTOR GRP LTD Price, Consensus and EPS Surprise
VECTOR GRP LTD Price, Consensus and EPS Surprise | VECTOR GRP LTD Quote
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