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Altria Inc.’s (MO - Free Report) adjusted earnings of 57 cents per share in the first quarter of 2014 were in line with the Zacks Consensus Estimate. The results, however, exceeded the prior-year quarter’s results by 5.6% backed by strong performance of core tobacco business and leading premium brands.

Revenues and Margins

Revenues, net of excise taxes, went up 0.9% year over year to $4.00 billion for the quarter due to revenue gains in the smokeless segment. Revenues missed the Zacks Consensus Estimate of $4.04 billion by 1%.

In the quarter, gross profit slipped 15.6% to $2.3 billion compared with the prior-year quarter due to higher cost of sales. Operating income slipped 19.0% year over year to $1.8 billion due to lower profit and higher marketing, administration and research cost.

Segment Details

Smokeable Products Segment: Revenues inched up 1.2% to $3.5 billion mainly due to market share gain of premium leading brands.

Shipment volume in the quarter declined 2.5% to 29.02 billion units compared with the prior-year quarter, primarily due to decline in cigarette shipment volume.

All the leading brands of Marlboro, L&M brands and Black & Mild reported a gain in market share during the quarter.

Adjusted operating income increased 6.4% year over year to $1.5 billion, reflecting higher pricing. Operating income margins inflated 2.2 percentage points (pp) to 44.1% during the quarter.

Smokeless Products: Revenues increased 5.8% to $385 million backed by higher shipment volume.

Smokeless products’ fourth-quarter shipment volume increased 5.9% to 186.1 million units mainly due to higher volume of Copenhagen and Skoal brands.

Although Copenhagen brand gained retail share by 1.5 pp during the quarter, Skoal witnessed a decrease in retail share by 1.3 pp primarily due to competitive activity.

Furthermore, adjusted operating companies’ income increased 7.7% year over year to $239 million backed by improved volume and pricing. Operating companies’ income margins 1.1 pp to 62.1%.

Wine: The segment’s revenues went up 2.5% year over year to $124 million on the back of improved premium mix. Wine shipment volume increased 1.1% to $1.7 million units, due to higher distribution of the 14 Hands brand.

Adjusted operating companies’ income went up 10.0% to $22 million on the back of positive pricing. Operating income margins shrank 1.2 pp to 17.7%.


During the first quarter of 2014, Altria repurchased approximately 7.5 million shares of for approximately $272 million.


Altria reaffirmed 2014 earnings guidance. It expects earnings 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, lower effective tax rate and lower share count due to the current share buyback program.

Altria carries a Zacks Rank #4 (Sell). Better-ranked stocks in the tobacco sector include Philip Morris International Inc. (PM - Free Report) and Lorillard Inc. carrying a Zacks Rank #2 (Buy). Another stock performing well in the retail sector includes Supervalu Inc. (SVU - Free Report) carrying a Zacks Rank #2.

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