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It has been about a month since the last earnings report for Altria (MO). Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Altria due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Altria's Q4 Earnings Miss Estimates, Revenues Grow Y/Y
Altria Groupposted fourth-quarter 2020 results, wherein adjusted earnings came in at 99 cents per share, which dropped 2% year over year and fell short of the Zacks Consensus Estimate of $1.01. This is accountable to adjusted losses in the all other category, reduced adjusted earnings from the company’s equity investment in AB InBev, elevated income taxes, escalated corporate expenses and a rise in financing costs, somewhat compensated by increased adjusted operating companies income (OCI) in the smokeable products segment.
Net revenues advanced 4.9% year over year to $6,304 million. Revenues, after deducting excise taxes, grew 5.3% to $5,055 million. The consensus mark was pegged at $4,933 million. Revenues were largely aided by increased revenues in the smokeable products segment, partly countered by reduced revenues in all other categories.
Smokeable Products: Net revenues in the category rose 7.9% year over year to $5,567 million, courtesy of higher pricing, partly negated by increased promotional investments. Revenues, net of excise taxes, grew 9.1% year over year to $4,355 million.
Reported domestic cigarette shipment volumes grew 3.1% year over year, thanks to trade inventory movements, somewhat countered by retail share losses. On adjusting for trade inventory movements, smokeable products’ domestic cigarette shipment volumes fell an estimated 1%, whereas total domestic cigarette industry volumes grew 0.5%. Meanwhile, Altria’s reported cigar shipment volumes improved 15%. During the quarter, total cigarette retail share declined 0.3 percentage point to 49.3%. Adjusted OCI in the segment improved 9.2% to $2,388 million owing to better pricing and greater volumes, partly countered by higher promotional investments, increased resolution expenses and elevated costs. Adjusted OCI margin remained flat at 54.8%.
Oral Tobacco Products: Net revenues in the segment improved 4.5% from the year-ago quarter to $632 million, driven by greater pricing, somewhat countered by elevated promotional investments. Revenues, net of excise taxes, increased 4.5% to $600 million.
Domestic shipment volumes for the segment rose 0.5% mainly due to calendar differences and the industry’s growth rate, among other factors, partly countered by trade inventory movements and retail share losses (owing to an increase in oral nicotine pouch sales). On an adjusted basis, however, oral tobacco products shipment volumes climbed an estimated 0.5%. Total oral tobacco products’ retail share went down 2.4 percentage points to 49%. Adjusted OCI rose 4.3% to $412 million owing to improved pricing, partly offset by greater promotional investments and higher costs. Adjusted OCI margin remained nearly flat at 68.7%.
Wine: This segment has been largely hurt by the pandemic in 2020, including on-premise as well as direct-to-consumer sales. Net revenues declined 12.6% year on year to $180 million due to reduced shipment volumes. The segment’s revenues, net of excise taxes, declined 12.5% to $175 million. Reported wine shipment volumes dropped 13.3% to about 2.1 million cases. The company’s wine business is likely to remain under pressure due to the restrictions on dining and gatherings. Adjusted OCI in the category slumped 87% to $3 million, resulting from reduced shipment volumes and elevated costs. Adjusted OCI margin contracted 9.8 percentage points to 1.7%.
Other Updates & Guidance
A day prior to the earnings release, management approved a new share buyback program worth $2 billion, which is anticipated to conclude by Jun 30, 2022. Further, the company currently has an annualized dividend rate of $3.44 per share. Notably, the company maintains a long-term dividend payout ratio goal of about 80% of the adjusted EPS. Altria ended the quarter with cash and cash equivalents of $4,945 million, long-term debt of $27,971 million and total stockholders’ equity of $2,925 million.
Altria incurred pre-tax charges worth $50 million in 2020, related to COVID-19. These include costs related to personal protective equipment, and increased pay and health screenings, among others. However, the company noted that until now, its tobacco business has not witnessed any material disruption related to the government’s restrictions on consumer movements and business operations. Most of the retail stores where the company’s products are sold (like convenience stores) have been considered as essential businesses and remain open.
Notably, Altria has been benefiting from its non-combustible products. In December 2020, the IQOS 3 device was approved for sale in the United States by the U.S. Food and Drug Administration (FDA). During the fourth quarter, PM USA introduced IQOS devices for sale to certain convenience stores in Charlotte. Further, PM USA intends to expand IQOS and Marlboro HeatSticks to four new metro regions and surrounding areas in 2021. With regards to on!, Helix expanded its distribution by another 22,000 stores in the fourth quarter. on! is available in roughly 78,000 stores as of the end of the fourth quarter. This reflects growth of about 40% sequentially and more than five times the count from 2019-end. Moreover, on! has reached a retail share of 2.4 percentage points of the oral tobacco category in full-year 2020.
For 2021, the company envisions adjusted earnings per share in the range of $4.49-$4.62, indicating growth of 3-6% from $4.36 recorded in 2020. Altria continues to assess the macroeconomic impacts of the pandemic on adult tobacco consumers (ATCs), such as stay-at-home trends, disposable income, unemployment rates and buying patterns. In fact, the company expects 2021 cigarette industry volumes to be most affected by factors like adult smokers, unemployment rates, cross-category movement, buying power, stay-at-home trends and the timing and breadth of the coronavirus vaccine, among others. That said, the company did not offer a cigarette industry guidance due to uncertainties surrounding the abovementioned aspects.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Altria has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Altria has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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