Altria Reports In-Line - Analyst Blog

Altria Group Inc. (MO) the manufacturer and seller of cigarettes, wine and other tobacco products, registered robust fourth quarter and full fiscal 2010 results.

Virginia-based Altria posted adjusted earnings of 44 cents a share in the quarter, which was up 12.8% 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.

For fiscal 2010, adjusted earnings per share grew 8.6% to $1.90 a share, which was also in line with the Zacks Consensus Estimate.

Following the quarter's result, Altria provided 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 $2.02 remains within the guidance range.

However, the company raised its fiscal 2010 GAAP earnings range to $1.83 to $1.87 a share from $1.81 - $1.85 per share.

Compared to the prior-year period, the quarterly total revenue contracted 1.4% to $5.9 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 grew 1.0% to $4.1 billion. However, revenues were above the Zacks Consensus Estimate of $4.2 billion.

For full year 2010, Altria's net revenues increased 3.4% to $24.4 billion while revenues net of excise taxes increased 0.4% to $16.9 billion. The increase was primarily due to higher net revenues from cigarettes, smokeless products and wine which was partially offset by lower net revenues from financial services.

For the quarter under review, operating income increased 24.4% year over year to $1.5 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.

Operating income increased 14.0% to $6.2 billion primarily due to higher OCI from cigarettes and smokeless products, which included lower asset impairment, exit, integration and implementation costs, lower corporate asset impairment and exit costs and 2009 UST acquisition-related transaction costs.

However, these increases were partially offset by lower OCI from financial services, as well as a higher  reduction of Kraft (KFT) and The PMI Group (PMI) tax-related receivables that were fully offset by tax benefits associated with Kraft and PMI.

Segment Details

Net revenue for the Cigarettes segment decreased 3.4% year over year to $5,190 million, attributable lower volume which was partially offset by higher pricing. However, adjusted operating income for the Cigarettes segment grew 1.0% to $1,238 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 advanced 14.3% to $392 million in the reported quarter. However, adjusted operating income for the segment grew a robust 63.5% year over year to $217 million.

Attributing to higher promotional spending partially offset by and pricing, Cigars' net revenues and adjusted operating income plunged 8.2% and 43.6% to $123 million and $21 million, respectively, in the quarter compared to a year earlier.

Based on higher volume, the Wine segment's net revenues surged 14.4% to $151 million in the quarter. However, the adjusted operating income increased 23.3% year-over-year to $30 million.

Revenue from the Financial Services more than doubled year over year to $71 million in the quarter. Reported operating income grew a record $70 million $10 million in the prior-year quarter, reflecting higher gains on asset sales and asset impairment and exit costs in 2009.

Cost Savings, Share Repurchase and Financial Update

For fiscal 2010, Altria achieved cost savings of $317 million. The company expects an additional cost saving of $145 million by fiscal 2011 for total anticipated cost reductions of $1.5 billion versus 2006.

On January 26, 2011, the Board of Directors authorized a new $1 billion one-year share repurchase program.

Altria exited the year with cash and cash equivalents of $2,314 million versus $1,871 million in fiscal 2009. 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 70%.

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.