Altria Group Inc. (MO), the manufacturer and seller of cigarettes, wine and other tobacco products, reported results for the first quarter of fiscal 2011.
Virginia-based Altria posted adjusted earnings of 44 cents a share in the quarter, which was up 4.8% compared with the prior-year quarter and was in line with the Zacks Consensus Estimate. The quarter benefited from strong income across its tobacco businesses, lower asset impairment and exit costs, and higher operating companies income (OCI) from its financial services.
Following the quarter’s result, Altria reaffirmed its outlook for fiscal 2011. Adjusted earnings for the year are expected to be in the range to $ 2.01 – $ 2.07 per share, reflecting year-on-year growth of 6% – 9% from adjusted earnings of $ 1.90 per share delivered in fiscal 2010. The current Zacks Consensus Estimate of $ 2.04 remains within the guidance range.
Compared to the prior-year period, the quarterly total revenue contracted 2.0% to $ 5.6 billion. The decline was attributable to lower net revenues from cigarettes and cigars, partially offset by higher net revenues from smokeless products, financial services and wine.Excluding excise taxes revenues were flat year-over-year at $ 3.9 billion.
For the quarter under review, operating income increased 7.6% year over year to $ 1.6 billion primarily due to higher OCI from cigarettes and smokeless products, which included lower asset impairment, exit, integration and implementation costs, and higher OCI from financial services.
Segment Details
Net revenue for the Cigarettes segment decreased 1.9% year over year to $ 5,026 million, attributable lower volume which was partially offset by higher pricing.
However, adjusted operating income for the Cigarettes segment grew 9.5% to $ 1,347 million, primarily due to higher list prices, lower restructuring costs, higher cost savings from the Manufacturing Optimization Program and lower promotional spending, partially offset by lower volume and higher U.S. Food and Drug Administration user fees.
On the basis of the year-ago quarter, net revenue for the Smokeless Products contracted 0.5% to $ 379 million in the reported quarter. However, adjusted operating income for the segment grew a robust 8.4% year over year to $ 193 million.
Attributing to higher promotional spending partially offset by and pricing, Cigars’ net revenues and adjusted operating income plunged 13.3% and 53.2% to $ 117 million and $ 22 million, respectively, in the quarter compared to a year earlier.
Based on higher volume, the Wine segment's net revenues surged 6.3% to $ 101 million in the quarter. However, the adjusted operating income increased 71.4% year-over-year to $ 12 million.
Revenue from the Financial Services declined 23.1% year over year to $ 20 million in the quarter. Reported operating income was flat year over year.
Cost Savings, Share Repurchase and Financial Update
For the first quarter of fiscal 2011, Altria achieved cost savings of $ 35 million. The company expects an additional cost saving of $ 110 million by fiscal 2011 for total anticipated cost reductions of $ 1.5 billion versus 2006.
Altria exited the year with cash and cash equivalents of $ 3,432 million versus $ 2,314 million in the prior year quarter. Increase was driven by efficient working capital management. The company had a long term debt of $ 12.2 billion with a debt to capitalization ratio of 69%.
Business Outlook
Management at Altria stated that the business environment for 2011 is expected to remain challenging. This is because adult consumers remain under economic pressure and face high unemployment.
In addition, Altria’s tobacco operating companies also face a number of fears as they enter 2011.
Altria Group, that primarily competes with Phillip Morris International (PM), Reynolds America Inc. (RAI) and Lorillard Company (LO) currently holds Zacks #3 Rank, which implies a short-term Hold rating. On a long-term basis as well we are Neutral on the stock.
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