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Why Is Altria (MO) Up 7.4% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Altria Group (MO - Free Report) . Shares have added about 7.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Altria Group Q1 Earnings Miss Estimates on Weak Volumes
Altria reported weaker-than-expected results in the first quarter of 2017 as both earnings and revenues lagged the Zacks Consensus Estimate. The company maintained earnings guidance intact for 2017.
Adjusted earnings of $0.73 per share lagged the Zacks Consensus Estimate by a penny. However, earnings increased 1.4% year over year driven by higher operating income in the smokeable segment and lower outstanding shares. This was offset by lower equity earnings from Altria’s beer investment and lower income in the smokeless products segment, which was negatively impacted from the recall of some of its smokeless tobacco products.
In January, U.S. Smokeless Tobacco Co, a unit of Altria Group, had recalled some of its smokeless tobacco products after getting complaints from eight consumers in Indiana, Texas, North Carolina, Tennessee, Wisconsin and Ohio, who allegedly found some sharp metal objects in certain cans.
Revenues and Margins
Net revenue remained flat at $6.1 billion during the quarter as higher net revenue in the smokeable products segment were offset by lower net revenue in the smokeless products and wine segments. Revenues net of excise taxes increased 1.3% year over year to $4.59 billion, but missed the Zacks Consensus Estimate of $4.69 billion by 2.1%.
Supported by lower excise tax levied on products, gross profit increased 4.6% year over year to $2.78 billion.
Segment Details
Smokeable Products Segment: Revenues net of excise taxes inched up 1.9% year over year to $4.0 billion despite a difficult year-over-year comparison. The increase was primarily driven by strong pricing, partially offset by lower volume and higher promotional investments. Total shipment volume decreased 2.6% year over year to 29.1 billion units. Cigarettes retail market share declined 0.1 share point to 51% in the quarter.
Adjusted operating companies income (“OCI”) increased 8.1%, while adjusted OCI margins expanded 2.9 percentage points to 51.0%.
Smokeless Products: Despite higher pricing, revenues net of excise taxes declined 2.5% to $436 million in the first quarter, due to recall of some of its smokeless tobacco products. The recall also hurt Smokeless Products’ shipment volume and market share. Volumes declined 5% to 195.8 million units, where Copenhagen and Skoal shipment volumes declined 4.9% and others declined 6.5% in the quarter. Total smokeless products retail share decreased 0.7 share points to 53.5% in the first quarter.
Adjusted OCI declined 7.8% and margins decreased 3.6 percentage points to 61.9%.
Wine: The segment’s revenues net of excise taxes went down 2.9% year over year to $136 million owing to lower volumes. Wine shipment volume declined 10% to 1.7 million units due to delay in Easter holiday, which occurred in the first quarter of last year. Wholesalers also reduced year-end inventory which led to the decline in volumes.
Ste. Michelle’s OCI declined 25.0%, primarily due to lower volume and higher costs. OCI margins decreased 4.6 percentage points to 15.4%.
Outlook
Altria reaffirmed earnings guidance for full-year 2017 and expects adjusted earnings in a range of $3.26–$3.32, up 7.5% to 9.5% compared with adjusted earnings of $3.03 in 2016. Further, it anticipates higher adjusted diluted EPS growth in the second half of the year compared with the first half, driven by the benefit of reporting four full quarters of equity income from Altria’s beer investment in 2017 versus three quarters in 2016. Also, the second half will not have the impact of recall. Altria continues to expect 2017 full year effective tax rate on operations to be approximately 36%.
Financial Updates
Altria ended the quarter with cash and cash equivalents of $5.23 billion, long-term debt of $13.89 billion, and total shareholders’ equity of $12.26 billion.
In Mar 2017, Altria’s board declared a regular quarterly dividend of $0.61 per share. During the first quarter, Altria repurchased 7.7 million shares for approximately $551 million. As of Mar 31, 2017, Altria had approximately $1.4 billion remaining in the share repurchase program, which it expects to complete by the end of the second quarter of 2018.
Consolidation of Manufacturing Facilities
In Oct 2016, Altria announced the consolidation of several of its manufacturing facilities to streamline operations and achieve greater efficiencies. The consolidation, scheduled to be completed by the first quarter of 2018 is expected to deliver approximately $50 million in cost savings by the end of 2018.
E-Vapor Category in Focus
Altria’s subsidiary Nu Mark LLC (Nu Mark) stepped up the distribution of MarkTen to approximately 10,000 additional stores. MarkTen also now is available in three additional flavors.
Productivity Initiative
In Jan 2016, Altria announced the implementation of an initiative for approximately $300 million in annual productivity savings by the end of 2017. Part of the savings is to be realized through reduced spending on certain infrastructure, and will be invested in brand building and regulatory capabilities. Such initiatives are anticipated to help the company reap higher profits over the long term.
How Have Estimates Been Moving Since Then?
It turns out fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been two downward revisions in the last two months.
At this time, Altria's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is suitable for value and growth investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of this revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Why Is Altria (MO) Up 7.4% Since the Last Earnings Report?
It has been about a month since the last earnings report for Altria Group (MO - Free Report) . Shares have added about 7.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Altria Group Q1 Earnings Miss Estimates on Weak Volumes
Altria reported weaker-than-expected results in the first quarter of 2017 as both earnings and revenues lagged the Zacks Consensus Estimate. The company maintained earnings guidance intact for 2017.
Adjusted earnings of $0.73 per share lagged the Zacks Consensus Estimate by a penny. However, earnings increased 1.4% year over year driven by higher operating income in the smokeable segment and lower outstanding shares. This was offset by lower equity earnings from Altria’s beer investment and lower income in the smokeless products segment, which was negatively impacted from the recall of some of its smokeless tobacco products.
In January, U.S. Smokeless Tobacco Co, a unit of Altria Group, had recalled some of its smokeless tobacco products after getting complaints from eight consumers in Indiana, Texas, North Carolina, Tennessee, Wisconsin and Ohio, who allegedly found some sharp metal objects in certain cans.
Revenues and Margins
Net revenue remained flat at $6.1 billion during the quarter as higher net revenue in the smokeable products segment were offset by lower net revenue in the smokeless products and wine segments. Revenues net of excise taxes increased 1.3% year over year to $4.59 billion, but missed the Zacks Consensus Estimate of $4.69 billion by 2.1%.
Supported by lower excise tax levied on products, gross profit increased 4.6% year over year to $2.78 billion.
Segment Details
Smokeable Products Segment: Revenues net of excise taxes inched up 1.9% year over year to $4.0 billion despite a difficult year-over-year comparison. The increase was primarily driven by strong pricing, partially offset by lower volume and higher promotional investments. Total shipment volume decreased 2.6% year over year to 29.1 billion units. Cigarettes retail market share declined 0.1 share point to 51% in the quarter.
Adjusted operating companies income (“OCI”) increased 8.1%, while adjusted OCI margins expanded 2.9 percentage points to 51.0%.
Smokeless Products: Despite higher pricing, revenues net of excise taxes declined 2.5% to $436 million in the first quarter, due to recall of some of its smokeless tobacco products. The recall also hurt Smokeless Products’ shipment volume and market share. Volumes declined 5% to 195.8 million units, where Copenhagen and Skoal shipment volumes declined 4.9% and others declined 6.5% in the quarter. Total smokeless products retail share decreased 0.7 share points to 53.5% in the first quarter.
Adjusted OCI declined 7.8% and margins decreased 3.6 percentage points to 61.9%.
Wine: The segment’s revenues net of excise taxes went down 2.9% year over year to $136 million owing to lower volumes. Wine shipment volume declined 10% to 1.7 million units due to delay in Easter holiday, which occurred in the first quarter of last year. Wholesalers also reduced year-end inventory which led to the decline in volumes.
Ste. Michelle’s OCI declined 25.0%, primarily due to lower volume and higher costs. OCI margins decreased 4.6 percentage points to 15.4%.
Outlook
Altria reaffirmed earnings guidance for full-year 2017 and expects adjusted earnings in a range of $3.26–$3.32, up 7.5% to 9.5% compared with adjusted earnings of $3.03 in 2016. Further, it anticipates higher adjusted diluted EPS growth in the second half of the year compared with the first half, driven by the benefit of reporting four full quarters of equity income from Altria’s beer investment in 2017 versus three quarters in 2016. Also, the second half will not have the impact of recall. Altria continues to expect 2017 full year effective tax rate on operations to be approximately 36%.
Financial Updates
Altria ended the quarter with cash and cash equivalents of $5.23 billion, long-term debt of $13.89 billion, and total shareholders’ equity of $12.26 billion.
In Mar 2017, Altria’s board declared a regular quarterly dividend of $0.61 per share. During the first quarter, Altria repurchased 7.7 million shares for approximately $551 million. As of Mar 31, 2017, Altria had approximately $1.4 billion remaining in the share repurchase program, which it expects to complete by the end of the second quarter of 2018.
Consolidation of Manufacturing Facilities
In Oct 2016, Altria announced the consolidation of several of its manufacturing facilities to streamline operations and achieve greater efficiencies. The consolidation, scheduled to be completed by the first quarter of 2018 is expected to deliver approximately $50 million in cost savings by the end of 2018.
E-Vapor Category in Focus
Altria’s subsidiary Nu Mark LLC (Nu Mark) stepped up the distribution of MarkTen to approximately 10,000 additional stores. MarkTen also now is available in three additional flavors.
Productivity Initiative
In Jan 2016, Altria announced the implementation of an initiative for approximately $300 million in annual productivity savings by the end of 2017. Part of the savings is to be realized through reduced spending on certain infrastructure, and will be invested in brand building and regulatory capabilities. Such initiatives are anticipated to help the company reap higher profits over the long term.
How Have Estimates Been Moving Since Then?
It turns out fresh estimates have trended downward during the past month. There has been one revision lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been two downward revisions in the last two months.
Altria Group Price and Consensus
Altria Group Price and Consensus | Altria Group Quote
VGM Scores
At this time, Altria's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. The stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is suitable for value and growth investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of this revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.