Altria Group Inc (MO)

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Altria (MO) Q2 Earnings Surpass Estimates, Revenues Drop Y/Y
By: Zacks Investment Research | July 29, 2022

Altria Group Inc. (MO) delivered second-quarter 2022 results, wherein the bottom line cruised past the Zacks Consensus Estimate and increased year over year on solid pricing. However, revenues came in soft due to lower shipment volumes.

Altria Group, Inc. Price, Consensus and EPS Surprise



Quarter in Detail

Adjusted earnings came in at $1.26 per share, which increased 2.4% year over year and beat the Zacks Consensus Estimate by a penny. The year-over-year increase was backed by the reduced number of shares outstanding.

Net revenues fell 5.7% year over year to $6,543 million due to the lack of revenues from the wine segment, which was divested in October 2021, along with reduced revenues from smokeable products and oral tobacco products segments. After deducting excise taxes, revenues were down 4.3% to $5,374 million. The Zacks Consensus Estimate for revenues was pegged at $5,397 million.

Segment Details

Smokeable Products: Net revenues in the category dipped 2.9% year over year to $5,873 million due to the reduced shipment volume, partly compensated by increased pricing and reduced promotional investments. Revenues, net of excise taxes, fell 0.7%.

Domestic cigarette shipment volumes were down 11.1% year over year, mainly driven by the industry’s rate of decline, retail share losses and trade inventory movements. On adjusting for trade inventory movements and other factors, smokeable products’ domestic cigarette shipment volumes fell an estimated 8.5%. Altria’s reported cigar shipment volumes declined by 5%.

Adjusted operating companies income or OCI in the segment increased 0.6% to $2,800 million due to higher pricing and reduced promotional investments, partly offset by reduced shipment volumes, elevated costs and increased per-unit settlement charges. The adjusted OCI margin increased 0.7 percentage points to 59.1%.

Oral Tobacco Products: Net revenues in the segment declined by 4% from the year-ago quarter’s level to $665 million due to reduced shipment volumes and the increased percentage of on! volumes relative to MST compared with the year-ago period. This was somewhat made up by greater pricing. Revenues, net of excise taxes, fell 3.8%.

Domestic shipment volumes in the segment went down 4.4%, mainly due to trade inventory movements, retail share losses and the industry’s rate of decline. Retail share losses and the industry’s decline rate were hurt by macroeconomic pressures on the disposable income of adult tobacco consumers or ATC. On adjusting for trade inventory movements and calendar differences, oral tobacco products shipment volumes dipped 2.5%. Total oral tobacco products’ retail share fell 1 percentage point to 46.7%.

Adjusted OCI declined by 8.9% to $430 million due to elevated costs, increased promotional investments in on!, a mix shift and reduced shipment volumes. These were partially countered by increased pricing. The adjusted OCI margin contracted by 3.8 percentage points to 67.9%.

On Oct 1, 2021, MO, through its subsidiary UST LLC, completed the divestiture of Ste. Michelle Wine Estates (Ste. Michelle).


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Financial Updates

Altria ended the quarter with cash and cash equivalents of $2,567 million, long-term debt of $25,046 million and a total stockholders’ deficit of $2,403 million.

During the first half of 2022, Altria bought back 21.4 million shares for $1.1 billion. As of Jun 30, 2022, Altria had shares worth roughly $750 million remaining under its $3.5-billion share repurchase program, which is anticipated to conclude by Dec 31, 2022.

During the first half, MO paid out dividends worth $3.3 billion. The company maintains a long-term dividend payout ratio goal of about 80% for adjusted earnings per share (EPS).

Other Developments & Guidance

Altria continued to witness elevated inflation rates in the second quarter due to rising global energy, commodity and food prices, which were worsened by factors like demand-supply imbalances, labor shortage and the Ukraine war. Apart from this, the company continued to see volatility in domestic and global economies as well as hurdles in the supply and distribution channels stemming from the pandemic and the Ukraine war. This impacted availability and the cost of certain raw materials for Altria.

Altria noted that its tobacco business has not witnessed any material disruption related to the pandemic. For 2022, the company envisions an adjusted earnings view in the range of $4.79-$4.93 per share. The bottom line indicates growth of 4-7% from the $4.61 recorded in 2021. Management stated that the company will continue assessing external environmental factors like global supply-chain hurdles, elevated inflation, ATC dynamics, purchasing patterns, the adoption of smoke-free products, the impacts of Russia’s invasion of Ukraine, disposable income and tobacco usage occasions, among others.

The bottom line also takes into account planned investments associated with costs to improve the digital consumer engagement system, enhanced smoke-free product research, development and regulatory preparation expenses and marketplace activities to support the company’s smoke-free products. The view also includes anticipation of the inflation of Master Settlement Agreement expenses and direct and indirect material costs. MO does not expect PM USA to have access to the IQOS system in 2022.

Shares of this Zacks Rank #3 (Hold) company have declined 20.7% in the past three months compared with the industry’s drop of 7.2%.

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