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Altria (MO) Q2 Earnings Top, Smokeable Unit Hurts Revenues

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Altria Group Inc.’s (MO - Free Report) second-quarter 2018 results reflect consistent strength in the bottom line. This marks the company’s fourth consecutive earnings beat. The quarterly performance also indicates improved revenues in the smokeless category.

Nevertheless, lower revenues in the smokeable unit stemming from lower volumes, weighed on the company’s top line in reported the quarter.  Notably, shares of this tobacco player declined almost 2.6% during the pre-market trading session on Jul 26.

Quarter in Details

Adjusted earnings of $1.01 per share came ahead of the Zacks Consensus Estimate of $1.00. Earnings improved 18.8% year over year on the back of lower outstanding shares and lower tax rate. These were partially offset by lower adjusted operating companies income (“OCI”) in the smokeable segment and higher spending on innovation.

Net revenues of this Zacks Rank #3 (Hold) company declined 5.4% year over year to $6,305 million. The downside reflects lower revenues from the smokeable unit. Revenues net of excise taxes also fell 3.7% to $4,879 million. The Zacks Consensus Estimate was $5,039 million.

Also, in the quarter under review, gross profit improved 3.2% from the prior-year quarter to $6,077 million.

Altria Group, Inc. Price, Consensus and EPS Surprise


Segment Details

Smokeable Products Segment: Net revenues in the category dropped 6.3% year over year to $5,546 million, thanks to lower volumes and increased promotional spending. These were partially offset by higher pricing. Revenues net of excise taxes also declined 4.8% year over year to $4,158 million.

Total shipment volume in the category fell 10.6% from the prior-year quarter. Also, domestic cigarette shipment volumes dropped 10.8% year over year owing to lower cigarette industry volumes, decline in retail share and unfavorable trade inventory movements. Further, during the quarter, the company’s total cigarette retail share declined to 50.2%, representing a 0.7 percentage point slip.

Well, the company has been witnessing declining cigarette volumes for a while now due to stringent government regulations and increased consumer awareness regarding the negative impact of tobacco. Such factors have been weighing on investors’ optimism in the stock. Evidently, shares of the company have lost 21.8% in a year compared with the industry’s decline of 24.9%.

Adjusted OCI in the segment declined 2.8% to $2,186 million due to lower cigarette volumes, partially made up for by higher pricing and lower promotional spending. Nevertheless, adjusted OCI margins went up 1.1 percentage points to 52.6%.

Smokeless Products: Net revenues in the segment rose 2.7% from the year-ago quarter’s figure to $579 million owing to improved pricing, partially countered by lower volumes. Also, revenues net of excise taxes advanced 2.8% to $545 million in the quarter.

Domestic shipment volumes in the category dipped 2.4% to 215.7 million units, mainly accountable to a decline in the industry and loss of retail share. Also, total smokeless products retail share fell 0.2 percentage points to 54.1% in the quarter.

Adjusted OCI rose 3.5% to $381 million due to higher pricing, partially countered by lower volumes.  Further, adjusted OCI margin expanded 0.5 percentage points to 69.9%.

Wine: Net revenues in the wine category increased 10.7% year over year to $166 million, driven by greater shipment volumes and favorable mix. The segment’s revenues, net of excise taxes, increased 11.7% to $162 million. Wine shipment volume improved 6.3% to 1.9 million cases.

Adjusted OCI in the category improved 8% to $27 million as a result of enhanced volumes and favorable mix, partially countered by higher costs. However, adjusted OCI margin contracted 0.5 percentage point to 16.7%.

Financial Updates

Altria ended the quarter with cash and cash equivalents of $1,430 million, long-term debt of $13,036 million and total stockholders’ equity of $15,798 million, as of Jun 30, 2018.

During the second quarter, Altria paid dividends worth $1.3 billion. The company’s annualized dividend rate is currently at $2.80 per share. Further, management is on track to maintain a payout ratio of 80% of the bottom line.

Further, the company repurchased 7.6 million shares for approximately $437 million in the quarter. Also, in May 2018, management expanded the existing share repurchase program by an additional $1 billion. As of Jun 30, 2018, Altria had around $1 billion remaining under the share repurchase program, which is expected to be completed by end of second-quarter 2019.


For 2018, management raised the lower end of earnings guidance. The company now expects adjusted earnings in the range of $3.94-$4.03, compared with the previous view of $3.90-$4.03. The revised guidance reflects year-over-year growth of 16-19%. Further, the company continues to expect 2018 adjusted effective tax rate of 23-24%.

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B&G Foods, Inc (BGS - Free Report) a Zacks Rank #2 company, delivered an average positive earnings surprise of 0.7% in the trailing four quarters.

Pinnacle Foods Inc , with long-term earnings per share growth rate of 8%, also carries a Zacks Rank #2.

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