Tobacco companies have long been known to return rich dividends to its investors. Altria Group (MO, Financial) is no exception to this. The Altria group of companies has a strong American heritage stretching back more than 180 years.”‹ The U.S. Smokeless Tobacco Company is the world’s leading producer and marketer of moist smokeless tobacco products.”‹
The brand portfolios of Altria’s tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, MarkTen and Green Smoke. Ste. Michelle produces and markets premium wines sold under various labels, including Chateau Ste. Michelle, Columbia Crest, 14 Hands and Stag’s Leap Wine Cellars.
Currently the tobacco companies are facing headwinds, but the good pricing power of Altria gets it through. Cost curtailment and price rises have contributed to its third-quarter success. It had a remarkable quarter, and I am bullish about this company.
There is a decline in smoking rates, and regulations are increasing. It is safer to invest in this company since people prefer the same brands over and over again. It has a steady balance sheet. The diversion into ecigarettes will certainly add fuel to its growth. Altria derives most of its profits from ecigs. We can rightly assume that a hefty amount of its revenues would be added by ecigs.
Strong third quarter
Reported diluted earnings per share (EPS) during the third quarter increased by 9.9% and were 78 cents.
Adjusted diluted EPS during the third quarter increased by 8.7% and were 75 cents.
Altria’s 2015 nine-month reported diluted EPS increased by 5.2% and were $2.03.
Altria’s 2015 nine-month adjusted diluted EPS increased by 11.5% and were $2.13.
Smokeable products
The smokeable products segment’s net revenues increased 3.1% in the third quarter of 2015. Revenues net of excise taxes increased 4.7% in the third quarter and 6.4% for the first nine months of 2015.
The smokeable products segment’s 2015 third-quarter reported OCI increased 15.3%. The smokeable products segment delivered strong adjusted OCI and adjusted OCI margin growth in the third quarter and for the first nine months of 2015, primarily through higher pricing.
Smokeless products
The smokeless products segment’s net revenues increased by 3.4% in the third quarter and 3.6% for the first nine months, primarily driven by higher pricing, partially offset by higher promotional investments. Revenues net of excise taxes increased 4.2% in the third quarter and 4.0% for the first nine months of 2015.
The smokeless products segment’s reported domestic shipment volume increased 0.9% in the third quarter and 2.0% for the first nine months of 2015, as volume growth in Copenhagen was partially offset by declines in Skoal and other portfolio brands. Copenhagen and Skoal’s combined reported shipment volume increased 1.7% in the third quarter and 2.9% for the first nine months of 2015.
Wine
In the wine segment, Ste. Michelle grew net revenues in the third quarter of 2015 by 8.5% and for the first nine months by 7.7%, primarily due to increased shipments and improved premium mix. Ste. Michelle grew OCI 12.9% in the third quarter and 19.8% for the first nine months, primarily driven by increased shipments and improved premium mix.
Dividends
In August 2015, Altria’s board of directors increased the regular quarterly dividend by 8.7% to 56.5 cents per share. The current annualized dividend rate is $2.26 per share. As of Oct. 23, Altria’s annualized dividend yield was 3.7%. Altria paid more than $1 billion in dividends in the third quarter and approximately $3.1 billion for the first nine months of 2015. Altria expects to continue to return a large amount of cash to shareholders in the form of dividends by maintaining a dividend payout ratio target of approximately 80% of its adjusted diluted EPS.
Share repurchases
Altria repurchased 1.2 million shares for a total of $63 million during the third quarter of 2015, completing its previous share repurchase program. The board authorized a new $1 billion share repurchase program, which the company expects to complete by the end of 2016.
2015 full-year guidance
- Altria reaffirms its guidance for 2015 full-year adjusted diluted EPS to be in a range of $2.76 to $2.81. This range represents a growth rate of 7.5% to 9.5% from an adjusted diluted EPS base of $2.57 in 2014.
- Full-year effective tax rate on operations to be around 35.3%.
(Source: Company’s Website)
Expectations
Altria is continually ramping up its innovation process. It is taking the right initiatives to gain market dominance. This trend is going to continue. Altria is all set to build a solid international presence, and it may be rightly said that it will find many tobacco huffers. Investors who have no issues with these companies should definitely consider taking up this company. It has been known for pumping steady returns to its shareholders. Altria is poised to grow further in the near future, creating shareholder returns. Turning to innovative tobacco products, Nu Mark LLC remains focused on building a robust portfolio of innovative tobacco products for adult smokers and vapors.
On a concluding note
“Altria continued to deliver outstanding performance in the third quarter and for the first nine months. Once again, our businesses strengthened their market leadership, with strong income growth and solid retail share gains by the iconic Marlboro and Copenhagen brands,” said Marty Barrington, Altria’s chairman, chief executive officer and president. “We believe our year-to-date adjusted EPS growth of 11.5% positions us well to deliver on our full-year plans. In addition, we’re pleased Anheuser-Busch InBev (BUD, Financial) and SABMiller (SAB, Financial) continue to work together to finalize terms in advance of their possible combination. We see this transaction, and our participation in it as SABMiller’s largest shareholder, as a compelling opportunity to strengthen for our shareholders our position in the global brewing business.”
Altria is a dividend aristocrat; despite hailing from an unhealthy industry, this company has a huge customer base. This company is known for becoming investors’ staple. It competes with premium brands and boasts of higher margins than most of them. Many have thought that the cigarette industry is a sunset industry because of the social stigmatization attached to it. But there is a silver lining to it since an increasing number of people are moving towards ecigarettes. Out of the global $169 billion tobacco industry, about $6 billion comes from ecigs. The U.S. is the largest ecig market worth $1.7 billion as of 2014. This company has plenty of room for growth and to offer to its shareholders.
It is one of the most consistent companies and has increased its dividends year over year. For the past 46 years, it has increased its dividends.
Disclosure: I do not hold any position in the company.
