What Every Altria Investor Needs to Know About Its First-Quarter Earnings

Altria Group gave updates on cigarette volume, cigarette alternatives, and capital allocation on its first-quarter conference call. Here's what Altria investors need to know.

Apr 29, 2014 at 8:30AM

Altria Group's (NYSE:MO) first-quarter earnings sent shares up slightly to $38.60 last week. The stock price is 12% higher than its recent low; it hit $34 in early February after disappointing earnings and a sharp decline in cigarette shipments. Fortunately, the company delivered better first-quarter results. In addition to commendable cigarette volume, Altria updated its progress on cigarette alternatives and provided guidance for capital allocation. Read on to find out what you need to know about Altria's first-quarter results.

G

Source: Wikipedia Commons.

Cigarette volume
Altria's recent first-quarter performance was much better than Q1 2013. Excluding excise taxes, Altria's smokeables revenue decreased 0.2% on a 2.5% decrease in volume. After adjusting for inventory changes, cigarette shipments decreased 3.5%, besting the industry's 4% decline. Marlboro shipments decreased 2.4%, but the brand picked up 0.2% in market share. Marlboro now has a 43.8% share of the U.S. cigarette market. On the other hand, Q1 2013 volume decreased 4% after adjusting for inventories on a 4.5% industry decline. First-quarter 2013 smokeables revenue declined 2.6%, and Marlboro volume decreased 5.5%.

In addition to better overall industry performance, Altria's Q1 2014 results improved due to the success of Marlboro brand extensions. For instance, Marlboro Black -- a special blend based on the flagship brand -- has had tremendous success in the market. Marlboro.com has also enabled Altria to increase customer interaction with the brand. These brand extensions have helped Marlboro gain share even as volume decreases.

Besides Marlboro brand extensions, Altria's smokeless products have also helped it offset cigarette volume declines. First-quarter smokeless revenue increased 6.4% excluding excise taxes, led by an 11.1% volume increase in Copenhagen shipment volume. Copenhagen grew its market share by 1.5% in the quarter thanks to Copenhagen Long Cut Wintergreen snuff. However, at less than one-tenth the size of the smokeables segment, Altria's strong smokeless segment does not move the needle on overall revenue or earnings.

E-cigarettes
The U.S. Food & Drug Administration recently provided guidance on how it intends to regulate the emerging category. The federal agency's proposed regulations are relatively light; the rules ban sales of e-vapor devices to minors but allow for advertising and flavorings. However, the rules require FDA approval for e-vapor devices, possibly slowing down innovation.

Altria is entering the e-cigarette market as part of a broader strategy to satisfy the desires of all adult tobacco consumers. It is rolling out its MarkTen e-cigarette nationwide after claiming the top market share in its Arizona test market. CEO Marty Barrington told analysts that e-vapor products will not be the only innovations coming from the industry in the years ahead. Although he did not specify what products may be in the pipeline, he may have been referring to heated tobacco products, or new innovations that have yet to be conceived. In any case, it is clear that Altria must innovate if it wants to grow revenue.

Capital allocation
Altria is a cash cow that is about to receive another injection of cash. Over the last three years, the company has paid a total of $1.2 billion to tobacco growers as part of a federal program that began in 2004. After the federal program ends later in 2014, Altria's expenses will decline by $400 million per year, freeing up cash to return to shareholders.

Although management did not directly address the impact of the program's expiration, the company intends to maintain an 80% payout ratio of adjusted diluted earnings per share. Thus, most of the additional free cash flow will go straight to shareholders as a dividend. The rest could go toward share repurchases and e-cigarette advertising, though management did not specify.

Foolish takeaway
Altria started off 2014 better than it ended 2013. Cigarette volume was in line with expectations but still declined. The FDA's proposed e-cigarette regulations give companies substantial leeway in advertising, which favors cash-heavy players like Altria. Finally, the company continues to return most of its earnings to shareholders each year -- the right strategy for a company that is past its prime. All in all, long-term shareholders should find nothing to gripe about in Altria's first-quarter results.

Top dividend stocks for the next decade
Altria is a reliable dividend stock. The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers