Altria Reports In-Line Q1 Earnings, Maintains View - Analyst Blog

Altria Inc.'s MO adjusted earnings of 57 cents per share in the first quarter of 2014 were in line with the Zacks Consensus Estimate. The results, however, exceeded the prior-year quarter's results by 5.6% backed by strong performance of core tobacco business and leading premium brands.

Revenues and Margins

Revenues, net of excise taxes, went up 0.9% year over year to $4.00 billion for the quarter due to revenue gains in the smokeless segment. Revenues missed the Zacks Consensus Estimate of $4.04 billion by 1%.

In the quarter, gross profit slipped 15.6% to $2.3 billion compared with the prior-year quarter due to higher cost of sales. Operating income slipped 19.0% year over year to $1.8 billion due to lower profit and higher marketing, administration and research cost.

Segment Details

Smokeable Products Segment: Revenues inched up 1.2% to $3.5 billion mainly due to market share gain of premium leading brands.

Shipment volume in the quarter declined 2.5% to 29.02 billion units compared with the prior-year quarter, primarily due to decline in cigarette shipment volume.

All the leading brands of Marlboro, L&M brands and Black & Mild reported a gain in market share during the quarter.

Adjusted operating income increased 6.4% year over year to $1.5 billion, reflecting higher pricing. Operating income margins inflated 2.2 percentage points (pp) to 44.1% during the quarter.

Smokeless Products: Revenues increased 5.8% to $385 million backed by higher shipment volume.

Smokeless products' fourth-quarter shipment volume increased 5.9% to 186.1 million units mainly due to higher volume of Copenhagen and Skoal brands.

Although Copenhagen brand gained retail share by 1.5 pp during the quarter, Skoal witnessed a decrease in retail share by 1.3 pp primarily due to competitive activity.

Furthermore, adjusted operating companies' income increased 7.7% year over year to $239 million backed by improved volume and pricing. Operating companies' income margins 1.1 pp to 62.1%.

Wine: The segment's revenues went up 2.5% year over year to $124 million on the back of improved premium mix. Wine shipment volume increased 1.1% to $1.7 million units, due to higher distribution of the 14 Hands brand.

Adjusted operating companies' income went up 10.0% to $22 million on the back of positive pricing. Operating income margins shrank 1.2 pp to 17.7%.

Other

During the first quarter of 2014, Altria repurchased approximately 7.5 million shares of for approximately $272 million.

Outlook

Altria reaffirmed 2014 earnings guidance. It expects earnings in the range of $2.52 to $2.59, up 6% to 9% from $2.38 in 2013.

Altria expects 2014 earnings to benefit from lower interest expense, lower effective tax rate and lower share count due to the current share buyback program.

Altria carries a Zacks Rank #4 (Sell). Better-ranked stocks in the tobacco sector include Philip Morris International Inc. PM and Lorillard Inc. LO carrying a Zacks Rank #2 (Buy). Another stock performing well in the retail sector includes Supervalu Inc. SVU carrying a Zacks Rank #2.