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Altria's (MO) Q1 Earnings Lag Estimates, Revenues Down Y/Y

Altria Group Inc. MO delivered first-quarter 2023 results, wherein earnings increased year over year, but the top line declined. While increased pricing remained a driver, soft domestic shipment volumes, especially in the smokeable product segment, remained a downside.

Quarter in Detail

Adjusted earnings came in at $1.18 per share, which increased 5.4% year over year but fell a penny short of the Zacks Consensus Estimate. The year-over-year increase was backed by the reduced number of shares outstanding, favorable interest costs and increased adjusted earnings from the company’s investment in ABI.

Altria Group, Inc. Price, Consensus and EPS Surprise

Altria Group, Inc. price-consensus-eps-surprise-chart | Altria Group, Inc. Quote

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Net revenues fell 2.9% year over year to $5,719 million, mainly due to reduced net revenues in the smokeable product unit. After deducting excise taxes, revenues were down 1.2% to $4,763 million. The Zacks Consensus Estimate for revenues was pegged at $4,991 million.

Segment Details

Smokeable Products: Net revenues in the category dipped 3.3% year over year to $5,090 million due to the reduced shipment volume and increased promotional investments, partly compensated by greater pricing. Revenues, net of excise taxes, dipped 1.4%.

Domestic cigarette shipment volumes decreased 11.4%, mainly due to the industry’s decline rate, retail share losses and trade inventory movements, partly countered by calendar differences. The industry’s decline and retail share losses were a result of macroeconomic pressure on Adult Tobacco Consumers’ (ATCs) disposable income.

On adjusting for trade inventory movements, calendar differences and other factors, the total estimated domestic cigarette industry volume fell an estimated 9%. Altria’s reported cigar shipment volumes rose 2.3%.

Adjusted OCI in the segment remained nearly unchanged at $2,515 million, with higher pricing being largely offset by reduced shipment volumes, elevated promotional investments and higher per-unit settlement charges. Adjusted OCI margins grew 0.9 percentage points to 60.4%.

Oral Tobacco Products: Net revenues in the segment rose 2.4% from the year-ago quarter’s level to $628 million. The upside can be attributed to improved pricing, partly negated by the increased percentage of on! shipment volumes relative to MST (compared with the year-ago period), reduced shipment volumes and elevated promotional investments. Revenues, net of excise taxes, grew 2.7%.

Domestic shipment volumes fell 1.8%, mainly due to retail share losses, trade inventory movements and other factors. These were somewhat offset by the industry’s growth rate and calendar differences. On adjusting for calendar differences and trade inventory movements, the oral tobacco product segment’s shipment volume dipped an estimated 3%.

Adjusted OCI rose 2.2% to $416 million, mainly due to increased pricing, somewhat negated by the changed mix, reduced shipment volumes and increased promotions. Adjusted OCI margins contracted 0.4 percentage points to 69.3%.

Other Updates

During the quarter, Altria entered into a deal to acquire NJOY Holdings for nearly $2.75 billion. The conclusion of this deal remains subject to clearance from the U.S. Federal Trade Commission.

Altria ended the quarter with cash and cash equivalents of $3,913 million, long-term debt of $24,048 million and a total stockholders’ deficit of $3,876 million.

The company did not make any share buybacks in the first quarter due to the timing of its NJOY Holdings deal announcement. As of Mar 31, 2023, Altria had shares worth $1 billion remaining under its repurchase program, which is anticipated to be concluded by Dec 31, 2023.

In the first quarter, the company paid out dividends of $1.7 billion.

Guidance

Altria reiterated its guidance for 2023. The company envisions the adjusted EPS in the range of $4.98-$5.13, suggesting growth of 3-6% from the $4.84 recorded in 2022.

MO continues assessing external environmental factors like increased inflation, higher interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income.

The bottom-line view also considers planned investments associated with costs to improve the digital consumer engagement system, and enhanced smoke-free product research, development and marketplace activities to support the company’s smoke-free products. The view also considers reduced expected net periodic benefit income.

2028 Goals

Management stated that it highlighted its 2028 Enterprise Goals at its 2023 Investor Day. These goals assume the successful conclusion of the abovementioned NJOY deal.

Altria targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). It targets annual dividend growth in the mid-single digits through 2028

The company plans to maintain a debt-to-consolidated EBITDA ratio of roughly 2.0. Further, Altria plans to maintain a total adjusted OCI margin of at least 60% in all of the next five years. Finally, it intends to maintain its leadership position in the U.S. tobacco space.  

Moreover, U.S. smoke-free volumes are expected to grow by at least 35% from the 2022 level of 800 million units. Management targets nearly doubling its smoke-free net revenues to $5 billion from the 2022 level.

Shares of this Zacks Rank #3 (Hold) company have risen 4.9% in the past three months compared with the industry’s growth of 1.9%.

Solid Consumer Staple Picks

Some better-ranked consumer staple stocks are Lamb Weston LW, Post Holdings POST and Conagra Brands CAG.

Lamb Weston, which operates as a frozen potato product company, currently sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 47.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year EPS suggests an increase of 111.1% from the year-ago reported number.

Post Holdings, a consumer-packaged goods holding company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 34.8%, on average.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year sales and earnings suggests growth of 2.2% and 112.5%, respectively, from the corresponding year-ago reported figures.

Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2 (Buy). CAG has a trailing four-quarter earnings surprise of 13.2%, on average.

The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests an increase of 7.1% and 16.1%, respectively, from the year-ago reported number.

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