Tobacco giant Altria
Altria shareholders received more welcome news earlier in the week when the U.S. Second Circuit Court of Appeals issued a stay that will bring a temporary hiatus to the proceedings in a case in which the plaintiff alleges misleading marketing of "light" cigarettes by Altria, Reynolds American
After that decision on Sept. 25, shares of Altria hit an intraday low of $75 each. During midday trading last Wednesday, Altria battled back to the $82 range. I believe the 9% run-up over the past few weeks can be attributed not only to the revised full-year forecast and the clarity about the potential Kraft spinoff, but also to the growing sentiment among analysts that the Schwab case won't inflict any material damages to the industry.
While cigarettes have long been this blue chip's cash crop, the company announced during the third quarter that it's test-marketing a smoke-free and spit-free tobacco product called Taboka. Taboka, which Altria developed on its own, is being test-marketed in the Indianapolis area. While cigarette sales have been declining nationally at a rate of 2% to 3% annually, the sales of smokeless tobacco products have been growing 4% to 5% per year.
I think the foray into the smokeless tobacco market indicates that Altria is in touch with national trends and hasn't grown complacent. The move should also bring added heat to competitors Reynolds American and UST
Aside from the slip in profits for the quarter, Altria did note that its domestic tobacco shipment volume was down 0.6% from the previous year. Its international tobacco shipment volume was down 0.5%.
The uncertainty surrounding the Schwab case and the decreased shipping volume, while troubling to investors, is more than offset by the Kraft announcement and the revised forecast. Income investors should note that Altria maintains a dividend yield of 4.2% and has crushed the market consistently.