Sunday, January 23, 2011

Altria Group Inc. (NYSE: MO): Q4 Earnings Preview 2010

Altria Group Inc. (NYSE: MO) is scheduled to release its fourth-quarter financial results before the opening bell on Thursday, January 27, 2011. Analysts, on average, expect the company to report earnings of 44 cents per share on revenue of $4.27 billion. In the year ago quarter, the reported company reported earnings of 39 cents per share on revenue of $4.10 billion. The company dominates the U.S. tobacco business, with 50% of the market. It is No. 1 in the U.S. in sales of cigarettes and smokeless tobacco and is No. 2 in cigars.

Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally.

The demand for company's cigarettes has been impacted by decreasing social acceptability of smoking, increased regulation, public awareness of smoking's health risks, and rising costs due to excise taxes and litigation expenses. However, the company has managed to grow its profits despite negative press and increased regulatory actions.

In the preceding third-quarter, the Richmond, Virginia-based company's net income was $1.13 billion, or 54 cents a share, compared to $882 million, or 42 cents a share, in the year-earlier quarter. On an adjusted basis, the company earned 54 cents a share in the latest quarter. Revenue rose 1.6% to $6.4 billion.  Analysts, on average, expected the company to report earnings of 52 cents per share on revenue of $4.42 billion. The company’s flagship Marlboro brand scored a retail market share of 42.6%, up from 41.9%.

At its last earnings call in October, the company boosted its 2010 full-year guidance for reported earnings from a range of $1.81 to $1.85 to a range of $1.83 to $1.87, reflecting tax benefits from the reversal of tax reserves and associated interest. The company also reaffirmed its 2010 full-year outlook for adjusted earnings in the range of $1.87 to $1.91, representing a growth rate of 7% to 9% from an adjusted base of $1.75 per share in 2009.

Many companies in the industry are diversifying to insure the waning smoking population does not affect their profits. Some like Altria  are investing more into their smokeless products and advertising for said alternatives. Altria owns the two leading smokeless brands, Skoal and Copenhagen, which are helping the company migrate smokers to other tobacco products as they attempt to quit. At Altria, smokeless product volume was up 16.4 %in the third quarter.

Cigarette manufacturers' pricing power remains intact despite increased government regulation and growing excise taxes. Manufacturers can still raise prices at a faster rate than volumes decline, creating revenue and earnings growth. This ability to pass escalating costs onto the consumer has been a boon to the industry where, generally, as the market shrinks the prices rise and margins remain stable

Altria’s diversified geographical footprint, robust cash flow, under-leveraged balance sheet, and high dividend yield supports its long-term profitability outlook.

Altria pays a 6.1% dividend and sells for less than 14 times trailing earnings. In terms of stock performance, Altria shares have gained nearly 21 percent over the past year.

Full Disclosure: None.
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