Altria Group (NYSE:MO) is scheduled to announce its Q1 earnings on April 26. We expect an improvement in the company’s profitability buoyed by two rounds of price hikes on its cigarette brands implemented in 2011. The company’s portfolio of smokeless tobacco products, consisting of Copenhagen and Skoal, should continue to post healthy volume growth helped by the launch of Wintergreen pouches in 2011. Altria is the biggest tobacco company in the U.S. and competes with Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI).

We have a $31.47 price estimate for Altria, which is in line with the current market price.

See our complete analysis of Altria stock here

Cigarettes likely to do well

The company raised the prices of all 14 of its cigarette brands twice in 2011, first in July and next in December. Since both the rounds of price hikes were implemented after March 31, 2011, we expect a profitability boost to its cigarettes business. We expect a further increase in profitability going forward since tobacco companies have resorted to periodic price hikes to make up for the declining volumes.^[1]

Revenue growth for cigarettes, if any, will be limited due to declining volumes. Cigarette volumes declined by 4% in 2011. However, we expect the volumes to show resilience with the launch of Marlboro Black in December 2011 and the company’s ongoing Marlboro Leadership Price (MLP) program which was initiated last year.

Smokeless tobacco products to drive growth

We expect the company to keep performing well in the smokeless tobacco segment helped by strong brands such as Copenhagen and Skoal. Copenhagen benefited from Wintergreen pouches introduced in 2011. Skoal volumes were helped by the launch of Skoal X-tra varieties and two new Skoal Snus products in 2011. Total smokeless products shipment volume stood at 734.6 million units in 2011, an increase of 1.4% from 2010.

More people today prefer smokeless tobacco products since they are perceived to be less harmful than cigarettes. To respond to this growing demand, Altria has entered into an agreement with Okono, an affiliate Fertin Pharma, to develop lower risk products.

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