Marlboro owner Altria Inc.’s MO adjusted earnings of 63 cents per share in the first quarter of 2015 beat the Zacks Consensus Estimate of 62 cents by 1.6%. Earnings also exceeded the prior-year quarter figure by 10.5%, backed by strong performance of the core tobacco business and leading premium brands.
Revenues and Margins
Revenues, net of excise taxes, increased 6.6% to $4.3 billion backed by higher sales in all the segments. Revenues also surpassed the Zacks Consensus Estimate of $4.15 billion by 2.1%.
Although excise tax levied on products and cost of sales increased, gross profit increased 9.7% from the year-ago quarter to $2.5 billion due to higher revenues. Operating income increased 7.6% year over year to $1.9 billion due to lower administrative expenses.
Segment Details
Smokeable Products Segment: Revenues increased 6.9% to $3.7 billion backed by higher pricing.
Shipment volume increased 1.6% to 29.5 billion units from the prior-year quarter primarily due to moderation in the industry’s rate of decline, trade inventory movements 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 0.4 pp. Marlboro’s retail share, however, gained 0.3 pp to 44%.
Adjusted operating income increased 12.6% year over year to $1.73 billion on the back of higher pricing. Operating income margins inflated 2.3 pp to 46.4%.
Smokeless Products: Revenues gained 3.4% to $398 million due to lower volume.
Smokeless Products’ shipment volume increased 2.7% to 191.4 million units backed by 3.7% increase in Copenhagen and Skoal shipment volume.
Copenhagen brand’s retail share gained 1 pp, while Skoal witnessed 0.5 pp decline in retail share primarily due to competitive activity.
Adjusted operating companies’ income increased 5% year over year to $251 million due to higher revenues and lower excise tax. Operating companies’ income margin inflated 1 pp to 63.1%.
Wine: The segment’s revenues went up 4% year over year to $129 million mainly due to higher pricing and improved shipments. Wine shipment volume increased 0.5% to 1.71 million units as higher volume in Columbia Crest brand was offset by lower volume in most of the other brands.
Adjusted operating companies’ income went up 22.7% to $27 million on the back of positive pricing. Operating income margins inflated 3.2 pp to 20.9%.
Other Financial Details
During the first quarter of fiscal 2015, Altria repurchased approximately 3.6 million shares for nearly $192 million.
Altria’s subsidiary Nu Mark LLC (Nu Mark) began shipping its MarkTen XL e-vapor products during the reported quarter. MarkTen XL is a larger format product that delivers twice the liquid and battery life as previous MarkTen products.
The company also completed cash tender offer for approximately $793 million aggregate principal amount of its senior unsecured 9.7% notes due in 2018.
Altria regularly returns value to shareholders. Since the spin-off of Philip Morris International Inc. PM in 2008, Altria increased its dividend every year. The company has increased its dividend 48 times in the last 45 years.
Outlook
Altria maintained 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 continues to expect that its 2015 full-year effective tax rate will be 35%.
Reynolds-Lorillard Merger a Threat?
Altria’s two peers — Reynolds American Inc. RAI and Lorillard Inc. LO — entered into an agreement per which the former will take over the latter for $68.88 per share or $27.4 billion, including the 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).
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