Can Altria Keep Growing Its Earnings?

On Thursday, Altria (MO -0.97%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, kneejerk reaction to news that turns out to be exactly the wrong move.

Altria has topped the tobacco industry for decades, with its leading Marlboro brand retaining its popularity around the world. But with the company having spun off its Philip Morris International (PM 0.39%) division, Altria now has to rely on the U.S. market, with its unique challenges and risks. Let's take an early look at what's been happening with Altria over the past quarter and what we're likely to see in its quarterly report.

Stats on Altria

Source: Yahoo! Finance.

Will Altria light up its earnings this quarter?
Analysts have stayed mostly stable on their views for Altria's earnings, keeping their estimates for the just-ended quarter unchanged over the past few months and raising their full-year 2013 consensus by a single penny per share. Yet the stock has provided strong returns, rising almost 10% since mid-January.

As I observed earlier this week, the entire cigarette industry has been under siege from regulatory and public health authorities. Altria's rivals Reynolds American (RAI) and Lorillard (LO.DL) were able to defeat an FDA proposal to force them to show graphic warnings on cigarette packs, but between negative ad campaigns and new attempts to eliminate tobacco display cases in New York City stores, Altria isn't getting any help in fighting a long-term trend of declining U.S. cigarette volume.

Altria could now face yet another new challenge, as President Obama's latest budget proposal includes a $0.94-per-pack increase in the cigarette tax. The levy could raise as much as $78 billion, but it will dampen demand for cigarettes by imposing yet another price increase on consumers. As proposed, the budget likely won't pass, but elements like the tobacco tax might make it into a compromise bill.

Nevertheless, investors have continued to gravitate to Altria and its peers for their high dividend yields. Even assuming no growth at all, the 5% yield that Altria, Lorillard, and Reynolds all offer represents a modest but reasonable return that many conservative investors would be happy with right now. It's also well above the 3.7% yield that Philip Morris International pays.

In Altria's quarterly report, be sure to compare the company's results with those that Reynolds released earlier today. Reynolds saw a drop in volume but higher earnings, and it was able to confirm its earnings guidance for 2013. If Altria does likewise, it would go a long way toward reassuring nervous investors about its immediate prospects.

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