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Cost-Control Efforts Lift Altria's 1Q Net 3.8%

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04/26/2012 | 05:48pm CET

--Altria's results relatively solid after weak reports from Reynolds American and Lorillard

--Gains by L&M and Marlboro helped Altria's total cigarette market share increase

--Smokeless products volume dropped, hurt by steep decline for Skoal, though Copenhagen grew

(Updates with executive comments from the conference call.)

   By John Kell 

Altria Group Inc.'s (>> Altria Group, Inc.) first-quarter profit rose 3.8% as the tobacco giant trimmed costs and gained market share for Marlboro and L&M, helping offset weaker cigarette volume.

Altria, the maker of Marlboro and other cigarette brands, has continued to benefit from growing interest in smokeless tobacco products such as Copenhagen, while sales of its cigarettes have been mixed. Altria introduced more than 50 smokeless products last year, launches that are vital to keep consumers interested in the category.

First-quarter domestic cigarette shipment volume dropped 2.6% due to trade-inventory patterns, better than the industrywide 4% drop as the maker of Marlboro cigarettes notched retail-share gains. Marlboro's volume slid 3.4% and other premium products fell 9.5% but discount brands notched an 18% increase.

Altria said after adjusting for trade inventories and an additional shipping day, cigarette volume was essentially flat from the prior year, compared with the industry's 2.5% decline when making those same adjustments.

The company's top line narrowly missed Wall Street's expectations though adjusted earnings were in line, a relatively strong report after peers Reynolds American Inc. (RAI) and Lorillard Inc. (>> Lorillard Inc.) issued weaker-than-expected first-quarter results.

The tobacco industry's cigarette volumes have been declining for years and a weak economy and high unemployment continue to pressure consumer disposable income. Reynolds American executives earlier this week said higher gasoline prices have affected tobacco purchasing patterns.

While Reynolds American executives said the promotional environment of late has been aggressive, Altria Chairman and Chief Executive Michael Szymanczyk said it wasn't that different sequentially.

Altria reported a profit of $973 million, or 48 cents a share, up from $937 million, or 45 cents a share, a year earlier. Excluding write-downs, tax-related items and other adjustments, per-share earnings rose to 49 cents from 44 cents.

Revenue edged up 0.1% to $5.65 billion and grew 1.3% to $3.99 billion excluding excise taxes.

Analysts polled by Thomson Reuters expected a 49-cent per-share profit on $4.01 billion of revenue, excluding excise taxes.

Gross margin widened to 39% from 38.1%, an improvement the company attributed to effective cost management.

Altria's total cigarette market share grew 0.4 percentage point to 49.4%, reflecting gains by L&M and Marlboro. Altria began to ship Marlboro Black in nonmenthol and menthol varieties late last year with packaging to distinguish that brand's flavor.

Smokeless products volume slid 7.5%, as a steep 15% decline for Skoal more than offset Copenhagen's growth. Altria launched Skoal X-TRA and Skoal Snus in the first quarter though that brand's growth has been tempered by the discontinuation of seven items in the portfolio last year.

Total smokeless products market share ended the quarter at 55.5%, one percentage point higher than the prior year. Copenhagen again gained share, aided by new product launches in recent years, including wintergreen pouches.

Chateau Ste. Michelle's revenue, net of excise taxes, jumped 12% as volume improved primarily due to expanded distribution of premium wines. Cigar's volume jumped 14% as market share improved due to new product launches including Black & Mild Classic.

Altria spent $294 million to repurchase 9.9 million shares at an average price of $29.71 during the first quarter. The company has $378 million remaining in a $1 billion buyback program that Altria intends to complete by the end of the year.

The company affirmed its full-year guidance, though Szymanczyk said Altria expects more modest adjusted-earnings growth through the middle quarters of the year.

Altria's shares fell 0.11% to $31.66 in recent trading. Dividend yields and strong cash flows drew investors to tobacco stocks last year, but shares of the four major publicly traded companies have been mixed in 2012 as the industry's valuations are at the upper end of the historical range. Altria has gained 6.5% this year, below the broader market.

-By John Kell, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com

--Drew FitzGerald contributed to this article

Stocks mentioned in the article : Altria Group, Inc., Lorillard Inc.
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Financials ($)
Sales 2016 19 388 M
EBIT 2016 9 172 M
Net income 2016 5 755 M
Debt 2016 9 126 M
Yield 2016 3,72%
P/E ratio 2016 16,18
P/E ratio 2017 19,24
EV / Sales 2016 6,86x
EV / Sales 2017 6,77x
Capitalization 123 901 M
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Altria Group Inc Technical Analysis Chart | MO | US02209S1033 | 4-Traders
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Mean consensus OUTPERFORM
Number of Analysts 13
Average target price 68,4 $
Spread / Average Target 7,6%
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Martin J. Barrington Chairman, President & Chief Executive Officer
Howard A. Willard Chief Operating Officer & Executive Vice President
William F. Gifford Chief Financial Officer
James E. Dillard Chief Innovations Officer & SVP-Regulatory Affairs
Thomas Wade Jones Independent Director
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