Altria Inc.’s (MO - Analyst Report) adjusted earnings of 75 cents per share in the third quarter of 2015 were in line with the Zacks Consensus Estimate. Earnings, however, exceeded the prior-year quarter figure by 8.7% backed by strong performance of the core tobacco business and the leading premium brands.
Revenues and Margins
Revenues, net of excise taxes, increased 4.7% to $5.0 billion year over year backed by higher sales in all the segments. Revenues also surpassed the Zacks Consensus Estimate of $4.97 billion by 0.6%.
Supported by lower excise tax levied on products and cost of sales, gross profit went up 13.9% from the year-ago quarter to $3.0 billion. Operating income increased 15.4% year over year to $2.3 billion backed by lower administrative expenses.
Segment Details
Smokeable Products Segment: Revenues increased 4.7% year over year to $4.35 billion driven by higher pricing.
Shipment volume remained almost flat at 33.53 billion units with the prior-year quarter primarily due to moderation in the industry’s rate of decline and retail share gains.
While cigarettes retail share gained 0.4 percentage point (pp) backed by higher gains in Marlboro and Discount brands, retail share for cigars declined 0.7 pp. Marlboro’s retail share went up 0.1 pp to 43.9%.
Adjusted operating income rose 11.1% year over year to $2.04 billion on the back of higher pricing. Operating income margins inflated 2.7 pp to 47.0%.
Smokeless Products: Revenues gained 4.2% to $448 million on the back of higher volume.
Smokeless Products’ shipment volume increased 0.9% to 204.9 million units backed by 1.7% rise in Copenhagen and Skoal shipment volume.
Copenhagen brand’s retail share gained 0.7 pp, while Skoal witnessed a 0.5 pp dip primarily due to competitive activity.
Adjusted operating companies’ income increased 2.5% year over year to $286 million backed by higher revenues and lower excise tax. Operating companies’ income margin shrank 1.1 pp to 63.8%.
Wine: The segment’s revenues went up 8.8% year over year to $161 million mainly backed by higher pricing and improved shipments. Wine shipment volume increased 8.8% to 2.12 million units driven by higher shipment of Ste. Michelle’s and 14 Hands brands.
Adjusted operating companies’ income went up 12.9% to $35 million on the back of positive pricing. Operating income margins inflated 0.8 pp to 21.7%.
Other Financial Details
In Aug 2015, Altria’s board of directors increased the regular quarterly dividend by 8.7% to 56 cents per share. The current annualized dividend rate is $2.26 per share.
The Marlboro owner spent $63 million to buy back 1.2 million shares of its common stock during the quarter.
Outlook
Altria reaffirmed the 2015 earnings guidance. The company expects earnings in the range of $2.76 to $2.81, representing an increase of 7.5% to 9.5% from $2.57 reported in 2014. Altria expects full-year effective tax rate to be 35.3%.
Focus on e-vapor Category
Altria’s subsidiary Nu Mark LLC (Nu Mark) expanded the distribution of MarkTen XL e-vapor products and Green Smokee-vapor products through several lead markets.
Additionally, Nu Mark and Philip Morris International Inc. (PM - Analyst Report) 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 #2 (Buy). Other well-ranked stocks in the consumer staple sector are Diamond Foods Inc. (DMND - Analyst Report) and Flower Foods Inc. (FLO - Snapshot Report). Both these stocks carry a Zacks Rank #2.
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