Please ensure Javascript is enabled for purposes of website accessibility

Altria Group Keeps Growing as Marlboro, Copenhagen Gain Share

By Dan Caplinger - Jan 28, 2016 at 9:19AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The tobacco giant's earnings fell short of expectations, but it sees solid growth in 2016.

Image source: Altria.

Tobacco king Altria Group (MO -0.34%) has held its place atop the domestic cigarette industry for decades, holding rival Reynolds American (RAI) at bay and providing investors with consistent growth. Coming into Thursday's fourth-quarter financial report, Altria investors didn't expect anything out of the ordinary from the tobacco maker, and for the most part, what Altria said about its most recent performance was roughly in line with what investors had wanted to see. Despite falling short on the earnings front, Altria boosted its market share in a tough industry environment and has strong prospects for further growth in 2016. Let's take a closer look at how Altria did and what lies ahead for the industry leader.

Cigarette demand hits the wall
Altria's fourth-quarter results were just shy of investor expectations for both the top and bottom lines. Revenue net of excise taxes was up about 2.5% to $4.73 billion, but that was less than the $4.75 billion consensus forecast among investors. Similarly, net income gains of about 1% to $1.25 billion produced adjusted earnings of $0.67 per share, which fell a penny short of what analysts had expected to see from the tobacco giant.

A closer look at Altria's segments gives some color on the quarter's results. The smokeable products business saw revenue net of excise taxes grow 2.6% and adjusted operating income rise 4.3%, reflecting Altria's continued pricing power in the industry. Altria said that domestic shipment volumes for cigarettes were down 2.6% during the quarter due largely to movements of inventory. But after adjusting for inventory and other factors, shipments rose 0.5%, outpacing the overall industry's flat performance. Marlboro shipments were down more than 3% to 26.1 billion cigarettes, but that was enough to boost its market share by two-tenths of a percentage point to 44%.

Altria's smokeless products segment grew at a faster pace, with post-excise tax revenue climbing almost 6% to $453 million and resulting in an 8% rise in operating income. Shipment volumes soared 4%, with Copenhagen leading the way with an 8% rise. Copenhagen's market share jumped more than a full percentage point to climb above the 32% mark, although declines from Skoal and other products more than offset Copenhagen's strength and sent overall market share for the segment down slightly to 55%.

Altria's wine segment also showed solid growth. Revenue rose more than 7%, and operating income climbed 4% on a nearly 6% increase in shipment volumes.

CEO Marty Barrington praised Altria for finishing the year on a strong note. "In 2015, Altria delivered yet another year of excellent business results and outstanding shareholder returns," Barrington said, noting the $4.2 billion in dividends that the company paid and the stock's 23% total return. "Our core businesses generated impressive and consistent income growth during the year behind the strength of their premium brands," said the CEO, and he also pointed to the moves regarding SABMiller as having a positive impact on Altria's future prospects.

What's ahead for Altria in 2016?
Altria gave guidance for 2016, expecting earnings of $3 to $3.05 per share. That represents 7% to 9% gains from its adjusted earnings of $2.80 per share for the full 2015 year. Altria also said it would likely spent $140 million to $180 million on capital expenditures during 2016, affirming its commitment to smart investments in its business.

What's especially impressive is that the Reynolds American merger with Lorillard hasn't seemed to have a big impact on Altria's market share. Some analysts believed that Reynolds American would make a splash in the industry following the merger, reinvigorating its lineup of cigarettes and using the Newport brand from Lorillard to spearhead new growth initiatives. At least for now, though, Reynolds American's efforts haven't put a dent in Altria's position in the industry, and that's good news for any shareholders who were worried about the competitive impact of the Reynolds-Lorillard combination.

Traders reacted negatively to Altria's having missed their expectations slightly, sending the stock down almost 3% in the first hour of pre-market trade following the announcement. Yet in the long run, these results show Altria's ability to remain resilient in the face of a hostile environment for tobacco growers generally.

Dan Caplinger 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
$44.10 (-0.34%) $0.15
Reynolds American Inc. Stock Quote
Reynolds American Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.