Altria Q1 2015 Earnings Report: Growth In Core Areas, But Vapor Falters

The Altria Group (NYSE:MO) came out with its Q1 2015 earnings on April 23. The company’s revenues grew by 5% year-on-year due to price increases and moderation in the decline in shipping volumes. Expenses related to financing activities, however, led to earnings coming in lower by 13% on a year on year basis. ^[1] Market share gains continued in the smokables and the smokeless segments, but the vapor product market share gains remain elusive for Altria.

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Price Increases And Volumes Drive Revenue

Pricing was the major contributor to the company’s revenue growth in Q1 2015. In the smokables category, operating companies income grew by 12% in the quarter, even as shipment volumes increased by just 1.6%. This means that there was a roughly 10% improvement in the price of the products sold under this category by the company. The price increase has been explained by management as arising from the strong brand equity of the Marlboro brand, which gives the company pricing power. ^[2]

The sales volume increase was due to a slowdown in the rate of decline of cigarette sales in the U.S. and retail share gains. Additionally, Altria did better than the industry and maintained its sales volume on a quarter-on-quarter basis. Among the smokables segment, both cigarettes and cigars showed small market share gains. Marlboro and L&M both grew their market share by a fraction of a percentage point. Black and Mild cigars also increased its market share by less than a percentage point. It also improved the volume mix by selling more of the tipped cigars. ^[1]

Challenges On The E-Cigarette Front

In our earnings preview, we wrote about the challenges faced by Altria in the e-cigarettes category. Altria believes the industry has not begun to introduce the kind of products that consumers want to see on the shelves. Management believes that the company will be able to perform well in the segment after investing in R&D and branding over the course of 2015.

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1. Altria 10-Q Q1 2015 [↩] [↩]
2. Altria Q1 2015 Earnings Call Transcript [↩]