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Will Pricing & Smokeless Unit Aid Altria's (MO) Q3 Earnings?

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Altria Group, Inc. (MO - Free Report) is slated to release third-quarter 2018 results on Oct 25, before the opening bell. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 5.1%. Let’s see how things are shaping up for this tobacco giant, prior to the announcement.

Advancements in Smokeless Category & Pricing Bodes Well

Rising social awareness regarding the harmful impacts of tobacco consumption combined with strict regulatory vigilance is driving consumers to shift to other low risk or smokeless tobacco products. Altria is responding to the changing market scenario by offering several reduced risk tobacco products.

Notably, the company’s flagship MarkTen and Green Smoke e-vapor products are performing favorably in the smokeless category. In fact, MarkTen is now a leading e-vapor brand in the United States.

We note that revenues in the Smokeless product category advanced 2.7% year over year to $579 million in the second quarter of 2018. Going ahead, we expect the aforementioned factors to continue fueling Altria.

Also, the marketing and technology sharing agreement between Altria and Philip Morris (PM - Free Report) , which is currently under FDA review, is expected to boost the business of the companies. Additionally, Altria is striving to receive FDA approval for the marketing of smokeless products with lower risk claims. In this respect, the company recently submitted a modified risk tobacco product application to FDA for Copenhagen Snuff.

Well, Altria’s strong pricing has also helped it stay afloat in the industry amid declining cigarette volumes. In second-quarter 2018, higher pricing drove adjusted operating income in the Smokeable and Smokeless segments. The company continues to envision product pricing to drive revenues in the forthcoming periods.

Lower Cigarette Volumes a Worry

Although Altria’s smokeless category has been performing well, the Smokeable category has been quite gloomy thanks to anti-tobacco campaigns and increased consumer awareness. Regulatory hurdles are also a vital factor that are limiting the marketing of cigarettes and affecting sales volume.

Unfortunately, these factors are hurting Altria’s Smokeable product category. During second-quarter 2018, domestic cigarette shipment volumes fell 10.8% year over year, due to lower cigarette industry volumes, decline in retail share and unfavorable trade inventory movements.

Moreover, the company’s cigarette shipment volumes declined 4.2% in the first quarter of 2018, preceded by contractions of 8.9%, 6.2%, 2.9% and 2.7% in the fourth, the third, the second and the first quarters of 2017, respectively. Apart from Altria, declining cigarette sales volumes have been hurting other tobacco players like Philip Morris, British American Tobacco (BTI - Free Report) and Vector Group (VGR - Free Report) .

Nevertheless, we expect Altria to tide over such challenges on the back of well-chalked pricing strategies and strength in Smokeless alternatives. These factors are likely to aid the company in delivering an impressive performance in the third quarter. Let’s now take a look at the picture unveiled by the Zacks Consensus Estimate and the Zacks Model for the upcoming quarterly announcement.

Altria Group, Inc. Price, Consensus and EPS Surprise

Estimates for Q3 Looks Bright

Altria has been delivering year-over-year bottom-line growth for quite some time. In fact, driven by strong results in the first half of 2018, management raised the lower end of 2018 earnings guidance, when it reported second-quarter 2018 results. The favorable bottom-line picture combined with advancements made in the Smokeless products category and gains from pricing strategies boost expectations for the upcoming quarterly results.

Incidentally, the Zacks Consensus Estimate for the third quarter, which is currently pegged at $1.07, reflects a year-on-year improvement of almost 18.9%. This estimate has been stable in the past 30 days. Moreover, the consensus mark for net revenues of $5,230 million for the impending quarter reflects a rise of almost 2.1% from the year-ago quarter’s tally.

Zacks Model

Our proven model does not show that Altria will beat earnings estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Although Altria’s Zacks Rank #3 increases the predictive power of ESP, its Earnings ESP of -0.23% makes us less confident about an earnings surprise. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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