Altria Group Delivers Fourth-Quarter Figures

The tobacco giant beat consensus on earnings

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Tobbaco giant Altria Group (MO, Financial) beat expectations in earnings it posted in its fourth-quarter report for 2017.

For the quarter that ended Dec. 30, 2017, Altria Group reported earnings per share, adjusted to one-time charges, of 91 cents per share, a 33.8% jump from 2016.

The tobacco giant has exceeded consensus by 11 cents. The beat produced a 13.70%. surprise.1830685408.jpg

Source: Yahoo Finance

The company reports that the growth in the adjusted net profit per diluted share was mainly due to a higher pricing on tobacco products and to lower selling, general and administrative expenses. A lower volume of shares outstanding because of the company repurchase program and a lower adjusted effective tax rate, also positively impacted the bottom line.

The fourth quarter net profit of Altria was backed on net revenues that came in at $6.1 billion, a 2.4% decrease from the prior-year quarter. The decline in revenues (net of excise tax) was only 0.4%. The decline was mainly a result of a lower volume of cigarettes shipped. In the fourth-quarter of 2017, Altria shipped 26,482 million sticks of cigarettes versus a volume of 29,057 million sticks shipped in the comparable of 2016. Sales volumes of Marlboro - the most popular brand of cigarettes in the U.S. – decreased by 8.8% on a year-over-year basis to 22,667 million sticks delivered in the quarter.

Marlboro is Altria Group’s flagship and with its sales volumes it usually accounts for 85% of Altria Group’s total revenues. Undoubtedly, competition impinged on the decrease of units shipped, however, what really dragged down the volumes was still the effect from the cigarette excise tax increase in California.

Excise tax rates for cigarettes are obviously the strongest predictor of cigarettes sales. The increase in these rates, which usually occurs at the beginning of each fiscal year, causes a higher volume of cigarettes to be shipped by tobacco companies during the first six months of the year compared to the second half of the year. This is because wholesale distributors try to anticipate higher pricing, which usually occurs in July when tax increases begin to have effect.

With Connecticut, Indiana, Delaware, Kansas, Ohio and New York being on the radar this year for a possible hike in the excise tax, sales volumes may start to increase again in the first part of 2018. This is exactly what happened in 2017 with Altria, following the hike in the excise tax in California, Altria Group shipped 59,296 million units of cigarettes in the first six months of 2017 versus a volume of 57,694 units shipped in the second part of the year.

The company also reported 80 basis points fell in the retail share of the cigarettes market to 50.3% in the fourth quarter of 2017.

The smokeable products segment accounted for approximately 87% of Altria Group’s fourth quarter total revenues; the smokeless products segment for about 9% and winery for 4%.

With yesterday’s report, the tobacco giant also updated shareholders on numbers for the entire year of fiscal 2017. The adjusted net profit increased by 11.9% on a year-over-year basis to $3.39 per diluted share in 2017 on net revenues of $25,576 million. Compared to one year ago, total net revenues of full fiscal 2017 were flat. The increase in the yearly adjusted income was essentially due to the same reasons already mentioned about the fourth quarter of 2017.

The chart below illustrates the trend in Altria Group’s total yearly and fourth quarter net revenues over the last five reporting periods. All numbers are in millions of USD.

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In addition, the company predicts that net earnings for full fiscal 2018 will be of $3.90 to $4.03 per diluted share versus a consensus of $3.97 per diluted share.

The company will buy back part of its own shares outstanding for a total amount of $1 billion. Altria Group plans to do that before the end of fiscal 2018.

Because this repurchase of own shares, Altria Group’ cash on hand decreased to $1.253 billion in 2017 from $4.569 billion in 2016. The total debt of the tobacco company stays at $13.9 billion.

Marty Barrington, Chairman and CEO of Altria Group, highlighted the fact that thanks to the company’s strong focus on rewarding its shareholders through a constant increase in the dividend and through buy-back programs, Altria Group was capable to deliver a 181% total return to the holders of the company over the last 5 years. At this rate Altria Group, added Marty Barrington, “outperformed both the S&P 500 and S&P Food, Beverage and Tobacco Index by more than 70%."

"That success was built on our core tobacco businesses, which delivered strong income growth and expanded their already high margins”, said Marty Barrington.

According to the chairman, Altria Group’s ability to reward its shareholders will also be strengthen by the just approved federal tax reform.

The new taxes package will also provide the tobacco giant with the necessary strength to further expand business.

Altria Group is currently trading at $69.93 per share on the New York Stock Exchange with a market capitalization of $133.44 billion.

For the 52-weeks through Feb. 1 the tobacco stock earned 23.72% and outperformed the S&P 500 index by 25.9%:

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Source: Yahoo Finance

Altria Group has a forward dividend of $2.64 and a forward yield of 3.78%.

(Disclosure: I have no positions in any security mentioned in this article).