Tobacco companies have some kind of stigma attached to them, but then these are companies that have long been known to return rich dividends to investors. Altria Group (MO, Financial) is one such company. The Altria Group has a strong American heritage stretching back more than 180 years.”‹ The U.S. Smokeless Tobacco Company, a subsidiary of Altria, is the world’s leading producer and marketer of moist smokeless tobacco products.”‹
Altria’s wholly owned subsidiaries include PM USA, USSTC, Middleton, Nu Mark, Ste. Michelle and PMCC. Altria holds a continuing economic and voting interest in SABMiller.
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, and it imports and markets Antinori, Champagne Nicolas Feuillatte, Torres and Villa Maria Estate products in the U.S.
The company’s strong second quarter was marked by excellent EPS. Solid performance from its leading premium brands contributed to this strong performance. In the first six months, the company paid more than $2.2 billion in dividends. The company raised its outlook for 2016 full-year adjusted diluted EPS.
Strong second quarter
Altria reported second-quarter diluted earnings per share (EPS) increased by 13.5% and was 84 cents.
Altria’s second-quarter adjusted diluted EPS, which excludes the impact of special items, increased by 9.5% and was 81 cents.
First-half reported diluted EPS increased by 17.6% and was $1.47.
Altria’s first-half adjusted diluted EPS, which excludes the impact of special items, increased by 10.9% and was $1.53.
Net revenue during the quarter decreased by1.4% and was $6.5 billion.
Net revenue increased by 1.4% and was $12.6 billion for the first half.
In the second quarter, Altria’s share of SABMiller (SAB, Financial) pretax special items totaled $21 million.
Smokeable products
In the second quarter, the smokeable products segment delivered solid income growth. The smokeable products segment’s net revenue decreased by 2.4% in the second quarter.
For the first half, net revenue increased by 0.5%.
The smokeable products segment’s second-quarter reported OCI increased by 4.6%.
For the first half, reported OCI increased by 4.3%.
Adjusted OCI grew 6.7% for the first half.
For the first half, PM USA’s reported domestic cigarettes shipment volume decreased by 2.1%.
PM USA estimated that its first-half domestic cigarettes shipment volume decreased by approximately 1.5%, in line with the industry.
Middleton’s second-quarter and first-half reported cigars shipment volume increased by 7.5% and 7.9%.
Marlboro’s retail share declined by 0.1 point and was 44.1% in the second quarter. For the first half, Marlboro’s retail share was unchanged at 44.1%.
PM USA’s total retail share was unchanged in the second quarter and grew 0.1 point for the first half.
Smokeless products
The smokeless products segment grew income and expanded adjusted OCI margins in the second quarter and first half.
The smokeless products segment’s net revenue increased by 8.7% in the second quarter and 10.0% for the first half.
Reported OCI increased by15.4% in the second quarter and 13.6% for the first half.
Adjusted OCI grew 13.8% and 15.1% in the second quarter and first half.
The smokeless products segment’s reported domestic shipment volume increased 4.3% in the second quarter and 6.0% for the first half.
In the second quarter and first half, Copenhagen and Skoal’s combined reported shipment volume increased 5.2% and 6.9%.
Copenhagen and Skoal’s combined retail share increased by 1.5 share points in the second quarter and was 52.5%. Copenhagen’s retail share grew 2.8 share points, while Skoal’s retail share declined by 1.3 share points. For the first half, Copenhagen and Skoal’s combined retail share increased by 0.9 share points and was 52.0%.
Total smokeless products retail share increased by 1.1 share points and was 55.8% in the second quarter and 0.7 share points to 55.5% for the first half.
Wine
In the wine segment, Ste. Michelle grew net revenue in the second quarter by 6.2% and by 7.1% for the first half. In the second quarter, Ste. Michelle’s reported OCI decreased by 2.9%. Adjusted OCI grew 5.7% and 4.8% in the second quarter and first half
Dividends
The company declared a regular quarterly dividend of 56.5 cents per share. The current annualized dividend rate is $2.26 per share. As of July 22 Altria’s annualized dividend yield was 3.3%. Altria paid more than $1.1 billion in dividends in the second quarter and $2.2 billion for the first half.
Share repurchases
During the second quarter, Altria repurchased 2.7 million shares at an average price of $64.06 for a total of $173 million. As of June 30 Altria had approximately $624 million remaining in the $1 billion share repurchase program, which it expects to complete by the end of the year.
(Source: Company’s website)
Expectations for 2016
| Ă‚ | Range |
| Full-year adjusted diluted EPS | To be between $3.01 and $3.07 |
| Full-year effective tax rate | To be around 35.3% |
Focus
- Ramping up its innovation process.
- Initiatives to gain market dominance.
- All set to build a solid international presence.
Initiatives
The company undertook a productivity initiative in January. Through this initiative, it plans to deliver approximately $300 million in annualized productivity savings by the end of 2017. This productivity initiative reduces spending on certain selling, general and administrative (SG&A) infrastructure and implements a leaner organizational structure.
Conclusion
It is pumping steady returns to its shareholders and is poised to grow. Despite hailing from an unhealthy industry, it is a dividend aristocrat and boasts of a huge customer base. More and more people are shifting towards e-cigs. It is one of the most consistent companies and has increased its dividends, year over year, for 46 years.
The company is performing extremely well now and is returning solid benefits to its shareholders in the form of dividends and and share repurchases. I think adding this company will reap shareholder benefits in the future, since the company is maintaining its momentum
Disclosure: I do not hold any position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.
