Marlboro owner Altria Inc.’s (MO - Analyst Report) adjusted earnings of 66 cents per share in the fourth quarter of 2014 missed the Zacks Consensus Estimate of 67 cents by 1.5%. Earnings, however, exceeded the prior-year quarter figure by 16%, backed by strong performance of the core tobacco business and leading premium brands.

Altria Group Inc. - Earnings Surprise | FindTheBest

Revenues and Margins

Revenues, net of excise taxes, increased 4.7% to $4.6 billion backed by higher sales in all segments. Revenues, however, missed the Zacks Consensus Estimate of $4.5 billion by 2.1%.

Gross profit increased 9.1% from the year-ago quarter to $2.6 billion due to lower excise taxes levied on the company during the quarter. Operating income gained 6.3% year over year to $1.91 billion due to higher sales.

Segment Details

Smokeable Products Segment: Revenues increased 3.3% to $3.9 billion backed by higher pricing.

Shipment volume, however, declined 1.6% to 31.66 billion units from the prior-year quarter primarily due to overall decline in the industry.

While cigarettes retail share gained 0.1 percentage point (pp) backed by higher gains in L7M and Discount brands, retail share for cigars declined 0.4 pp. Marlboro’s retail share remained flat.

Adjusted operating income increased 7.8% year over year to $1.71 billion on the back of higher pricing. Operating income margins inflated 1.8 pp to 43.9%.

Smokeless Products: Revenues slipped 4.1% to $428 million due to lower volume.

Smokeless products’ shipment volume increased 1% to 200.4 million units as volume growth in Copenhagen was mostly offset by declines in Skoal and Other portfolio brands.

Copenhagenbrand’s retail share gained 1.1 pp, while Skoal witnessed 0.7 pp decline in retail share primarily due to competitive activity.

Furthermore, adjusted operating companies’ income remained flat year over year at $257 million as higher pricing and volumes were offset by higher promotional expenses made by the company. Operating companies’ income margins declined 2.5 pp to 60%.

Wine: The segment’s revenues went up 8.4% year over year to $207 million mainly due to higher pricing and improved shipments. Wine shipment volume increased 9.6% to 2.81 million units as higher volume in most of the brands was offset by 10.6% decline in Other brands.

Adjusted operating companies’ income went up 17.8% to $53 million on the back of positive pricing. Operating income margins inflated 2.0 pp to 25.6%.

Fiscal 2014 Results

Adjusted earnings of $2.57 per share in 2014 were in line with the Zacks Consensus Estimate. Earnings, however, exceeded the prior-year quarter results by 8%, backed by strong performance by the core tobacco business and leading premium brands.

Revenues, net of excise taxes, increased 1.6% year over year to $17.9 billion backed by higher sales in all the segments. Results were in line with the Zacks Consensus Estimate.

Other Financial Details

During the fourth quarter of fiscal 2014, Altria repurchased approximately 6.4 million shares for nearly $275 million.

Altria’s subsidiary Nu Mark LLC (Nu Mark) began shipping its MarkTen e-vapor products during the reported quarter. It completed the nationwide expansion of MarkTen e-vapor products, achieving distribution in over 130,000 retail stores.

The company also issued $1 billion principal amount of 2.625% senior unsecured long-term notes due in 2020.

Altria regularly returns value to shareholders. Since the Philip Morris International Inc. (PM - Analyst Report) spinoff in 2008, Altria increased its dividend every year. Moreover, the company has increased its dividend 48 times in the last 45 years.

Outlook

Altria issued the 2015 earnings guidance. The company expects earnings in the range of $2.75 to $2.80. The guidance reflects an increase of 7% to 9% from $2.57 in 2014.

Altria expects that its 2015 full-year effective tax rate to be 35%. The company also expects capital expenditures in the range of $200 to $250 million.

 Reynolds-Lorillard Merger: A Threat?

Altria’s two peers — Reynolds American Inc. (RAI - Analyst Report) and Lorillard Inc. (LO - Analyst Report) — entered into an agreement per which the former will take over the latter for $68.88 per share or $27.4 billion, including assumption of net debt. The combined entity might pose a threat to Altria, which commands more than 40% market share in the U.S. tobacco industry.

Altria carries a Zacks Rank #2 (Buy).