Altria Group Inc.’s MO fourth-quarter 2018 results reflect consistent strength in the bottom line. This marks the company’s sixth consecutive earnings beat. Revenues also improved in the quarter, backed by improved pricing. Such upsides combined with a positive view for 2019 seems to have boosted investors’ optimism in the stock that gained nearly 2.5% in the pre-market trading hours on Jan 31.
However, shipment volumes in the smokeable segment were persistently dismal. In fact, declining cigarette sales have been a headwind for the company for long. Notably, shares of the company fell 25.3% in the past three months compared with the industry’s decline of 19.1%.
Quarter in Details
Adjusted earnings of 95 cents per share came ahead of the Zacks Consensus Estimate of 94 cents. Earnings improved 4.4% year over year on the back of lower outstanding shares and reduced income taxes. These were partially countered by reduced adjusted equity earnings pertaining to AB InBev.
Net revenues of this Zacks Rank #3 (Hold) company inched up 0.2% year over year to $6,114 million. The top line gained from improved revenues in the smokeable segment, on the back of improved pricing. Revenues net of excise taxes moved up 1.5% to $4,786 million. The Zacks Consensus Estimate was pegged at $4,806 million.
Also, in the quarter under review, gross profit rose 0.7% to $2,922 million from the prior-year quarter’s tally.
Altria Group, Inc. Price, Consensus and EPS Surprise
Altria Group, Inc. Price, Consensus and EPS Surprise | Altria Group, Inc. Quote
Segment Details
Smokeable Products Segment: Net revenues in the category inched up 0.4% year over year to $5,302 million, driven by higher pricing and lower promotional investments. These were primarily offset by reduced volumes. Revenues net of excise taxes inched up 1.9% year over year to $4,011 million.
Total shipment volume in the category fell 4.3% from the prior-year quarter’s tally. Also, domestic cigarette shipment volumes dropped 4.4% year over year owing to lower cigarette industry volumes and decline in retail share. During the quarter, the company’s total cigarette retail share declined to 49.8%, representing a 0.6 percentage point slip.
Adjusted OCI in the segment inched up 1.8% to $1,987 million due to improved pricing and reduced promotional investments. These were somewhat countered by lower shipment volumes and high costs. Adjusted OCI margins went down 0.1 percentage points to 49.5%.
Smokeless Products: Net revenues in the segment declined 0.5% from the year-ago quarter’s figure to $572 million, owing to lower shipment volumes that more than offset gains from higher pricing. Also, revenues net of excise taxes inched down 0.2% to $541 million in the quarter.
Domestic shipment volumes in the category declined 1.9%. Total smokeless products retail share were flat at 53.8%.
Adjusted OCI declined 2.4% to $360 million owing to lower shipment volumes and high costs, partially countered by improved pricing. Adjusted OCI margin contracted 1.6 percentage points to 66.5%.
Wine: Net revenues declined 11% year on year to $202 million, thanks to lower volumes that offset the gains from favorable premium mix. The segment’s revenues, net of excise taxes also contracted 10.5% to $196 million. Wine shipment volume declined 15.1% to 2.4 million cases.
Adjusted OCI in the category declined 51.6% to $31 million as a result of higher costs and reduced volumes. Adjusted OCI margin contracted 13.4 percentage point to 15.8%.
Financial Updates
During 2018, the company paid dividends worth almost $5.4 billion. The company’s annualized dividend rate is currently pegged at $3.20 per share. Further, management is on track to maintain a payout ratio of 80% of the bottom line.
Further, the company repurchased 27.9 million shares for approximately $1.67 billion in 2018. As of Dec 31, 2018, Altria had around $345 million remaining under the share repurchase program of $2 billion, which is expected to be completed by the end of second-quarter 2019.
Other Developments
In December 2018, the company entered into an agreement to acquire 45% stake in Cronos Group Inc. CRON for nearly $1.8 billion. The deal is likely to aid growth for Atria, considering the rapid expansion of the cannabis space. Further, the company also signed and closed the deal with JUUL. Altria has acquired 35% stake in JUUL for $12.8 billion. The deal was financed primarily through a term-loan facility.
Moreover, last month, the company revealed a cost reduction program aimed at delivering annualized cost savings of nearly $575 million by the end of 2019. In addition to efforts pertaining to cost-minimization across several platforms, the program is aimed to reduce workforce and third-party spending. During the fourth quarter, the company recorded pre-tax charges of $121 million in relation to this program.
Outlook
Management provided guidance for 2019, wherein it expects adjusted earnings in the range of $ $4.15-$4.27, which depicts year-over-year growth of 4-7%. The outlook excludes expenses related to; the Tax Cuts and Jobs Act, acquisition costs related to JUUL and Cronos investments as well as charges related with Cost Reduction Program.
Moreover, Altria expects domestic cigarette industry volume to decline in the range of 3.5-5%. Further, the company expects 2019 adjusted effective tax rate of 23.5-24.5%.
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