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Altria Group Inc.’s (MO - Analyst Report) adjusted earnings of 54 cents per share in the first quarter of 2013 missed the Zacks Consensus Estimate by a penny. The results exceeded the prior-year quarter results of 49 cents by 10.2%. The upswing in earnings came from positive pricing, higher earnings from Altria's equity investment in SABMiller and lower interest expense.
Revenues and Margins
Altria’s total revenue declined 2.1% year over year to $5.5 billion in the quarter due to lower sales of smokeable products. Revenues net of excise taxes increased 0.5% to $4.0 billion for the period. Revenues matched the Zacks Consensus Estimate.
In the quarter, gross profit surged 21.5% to $2.7 billion compared with the prior-year quarter as revenues has declined because of tight cost management. Operating companies’ income (operating income after operating expenses are deducted, but before income taxes and interest are deducted) shot up 30.3% year over year to $2.2 billion on the back of disciplined cost saving initiatives, under Altria’s cost reduction program.
Effective Jan 1, 2013, the company’s reportable segments are Smokeable Products, Smokeless Products and Wine. The financial services business and the alternative products business will be reported as All Other category.
Smokeable Products Segment: Net revenue for the smokeable segment slipped 2.6% year over year to $5.0 billion, primarily attributable to lower shipment volumes. Revenues net of excise tax declined 1.0% to $3.44 billion.
Furthermore, adjusted operating companies’ income increased 1.3% year over year to $1.4 billion, reflecting higher pricing and cost management. Operating companies’ income margin inflated 0.9 percentage points (pp) to 41.9% from the year-ago period.
Shipment volume in the quarter slipped 5.2% to 29.8 billion stocks compared with the prior-year quarter, primarily due to one less shipping day in the year and a 3.2 pp decline in retail share of cigars.
Smokeless Products: Net revenue in Smokeless Products increased 2.6% to $390 million, fueled by higher volume and pricing. Revenues net of excise tax went up 3.1% to $364 million.
Furthermore, adjusted operating companies’ income increased 5.2% year over year to $222 million. Smokeless products’ first-quarter shipment volume went up 3.4% to 175.7 million units on the back of volume growth in the Copenhagen brand.
Wine: The segment’s net revenue surged 11.5% to $126 million in the quarter, while revenues net of excise tax went up 11.0% year over year to $121 million on the back of higher shipment volume. Wine shipment volume went up 9.5% to $1.7 million units, driven by expansion in off-premise channels.
Adjusted operating companies’ income went up 33.3% to $20 million on the back of positive pricing.
Other Financial Update
Altria's cost reduction program for its tobacco and service company subsidiaries, which was announced in the fourth-quarter of 2011, remains on track. The program is expected to deliver $400 million in annualized savings by the end of 2013.
Altria repurchased 1.7 million shares at a total cost of approximately $57 million during the first-quarter of 2013. On Apr 24, Altria commenced a new $300 million share buyback program scheduled to end by the end of 2013.
As of Mar 31, 2013, Altria held $3.8 billion cash and cash equivalents compared to $2.9 billion as of Dec 31, 2012. Long term debt as of Mar 31, 2013 stood at $11.9 billion compared to $12.4 billion in Dec 2012.
Altria reiterated its 2013 earnings guidance range of $2.35 to $2.41 per share, representing a growth rate of 6% to 9% from $2.21 per share in 2012.
Headquartered in Richmond, Va., 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). Other stocks of the Consumer Staples segment like Flowers Foods Inc. (FLO - Snapshot Report), Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report) which carry a Zacks Rank #1 (Strong Buy) and Kraft Foods Group Inc. (KRFT - Analyst Report) that carries a Zacks Rank #2 (Buy) and currently doing well, are also worth considering.