Altria (MO) Misses Q4 Earnings, Smokeable Shipments Fall

Altria Inc.’s MO adjusted earnings of 67 cents per share in the fourth quarter of 2015 missed the Zacks Consensus Estimate of 68 cents by 1.5%. Earnings, however, exceeded the prior-year quarter figure by 1.5% backed by strong performance of the core tobacco business and the leading premium brands.

Revenues and Margins

Net revenue increased 1% to $6.32 billion year over year backed by higher sales in all the segments. However, revenues net of excise taxes, increased 2.5% year over year to $4.73 billion but missed the Zacks Consensus Estimate of $4.80 billion by 1.5%.

Supported by lower excise tax levied on products, gross profit went up 3.6% from the year-ago quarter to $2.72 billion. Operating income increased 2.8% to $1.97 billion.

Segment Details

Smokeable Products Segment: Net revenue increased 0.8% year over year to $5.56 billion driven by higher pricing, partly offset by lower shipment volume. Revenues net of excise taxes increased 2.6% to $4.01 billion.

Shipment volume declined 2.6% year over year to 30.85 billion units.

While cigarettes’ retail share gained 0.5 percentage point (pp) backed by higher gains in Marlboro and Discount brands, retail share for cigars declined 1.3 pp. Marlboro’s retail share went up 0.2 pp to 44%.

Smokeless Products: Revenues gained 4.7% to $486 million on the back of higher pricing, partially offset by higher promotional investments. Revenues net of excise taxes increased 5.8% to $453 million.

Smokeless Products’ shipment volume increased 4% to 208.5 million units backed by 4.8% rise in Copenhagen and Skoal shipment volume. Copenhagen brand’s retail share gained 1.1 pp, while Skoal witnessed a 0.9 pp dip.

Wine: The segment’s revenues went up 7.4% year over year to $231 million mainly backed by improved shipments. Revenues net of excise taxes increased 7.2% year over year to $222 million.

Wine shipment volume increased 5.9% to 2.98 million units, driven by higher shipments of Ste. Michelle’s and 14 Hands brands.

2015 Results

For 2015, Altria’s adjusted earnings increased 8.9% year over year to $2.80 per share.

In 2015, net revenue increased 3.7% year over year to $25.43 billion. Revenues net of excise taxes increased 5.1% year over year to $18.85 billion.

Outlook

Altria expects adjusted earnings per share in 2016 in the range of $3.00 to $3.05. This range represents a growth rate of 7% to 9% from an adjusted diluted EPS base of $2.80 in 2015.

Altria expects full-year effective tax rate to be 35.3%.

E-Vapor Category in Focus

Altria’s subsidiary Nu Mark LLC (Nu Mark) expanded the distribution of MarkTen XL and Green Smoke e-vapor products across several lead markets.

Additionally, Nu Mark and Philip Morris International Inc. PM continue to work to boost research, product development and technology-sharing for e-vapor products as part of the extended agreement between the latter and Altria.

The extended agreement also includes exclusive technology cross licenses, technical information sharing and cooperation on scientific assessment, regulatory engagement and approval related to these products.

The tobacco majors initially collaborated in 2013 to boost their e-vapor products. While Altria sells Marlboro exclusively in the U.S., Philip Morris sells them internationally.

Other Stocks to Consider

Altria has a Zacks Rank #3 (Hold). A couple of well-ranked stocks in the tobacco sector are Reynolds American Inc. RAI and British American Tobacco p.l.c. BTI. While Reynolds American sports a Zacks Rank #1 (Strong Buy), British American carries a Zacks Rank #2 (Buy).

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