Altria Q2 Earnings: Marlboro Volumes Fall, But Overall Market Share Remains Flat

by Trefis Team
Altria Group, Inc.
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Altria (NYSE:MO) announced its second quarter results on July 27th, beating EPS expectations, but missing out on revenue. While adjusted EPS grew 9.5% over the second quarter of the previous year, the revenues remained largely flat at $4.88 billion. The decline of 5.5% in the shipment volume of the company’s main brand, Marlboro, reflecting the decline in the industry and trade inventory movements, coupled with a 0.1 percentage point decline in its market share, were a drag on the revenue. The overall market share of the company remained flat, with growth in the share of its discount brands. Higher cigarette prices and cost cuts implemented by the company helped to bolster the earnings.

Altria Earnings 1 Altria Earnings 2

The decline in the smokeable segment is putting pressure on the company to generate greater earnings from its smokeless products segment, which delivered a solid performance in the quarter. Strong share growth of the company’s Copenhagen brand helped to grow volume. The national expansion of Copenhagen Mint at retail aided in a nearly three point gain in the brand’s retail share. In e-vapor, the company’s main brand MarkTen XL has captured nearly 50% of the e-vapor category volume in mainstream channels, including C-stores. The company is also teaming up with Philip Morris International (NYSE:PM) to create lower-risk tobacco products. PMI’s application to the FDA for pre-market authorization, and a modified-risk tobacco product designation to its iQOS technology, remains on track. This technology has the potential to be a game-changer in the US market. The Wine segment of MO also performed strongly, with volume growth seen in its premium wines.

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Altria also raised its outlook for the year, saying it expects adjusted earnings of $3.01 to $3.07, up from $3 to $3.05 per share. The company had, earlier in the year, stated its intentions of cutting $300 million in annual expenses by the end of 2017, by focusing on reducing SG&A costs and creating a leaner organization structure. The company is also set to benefit from a sweetened offer for SABMiller, in which Altria has a ~27% stake, by AB InBev, which raised its cash offer from £44 a share to £45, after the massive decline in the value of the pound, in the aftermath of the Brexit. However, currently the deal isn’t guaranteed, as SABMiller’s management has suspended work on the integration, while it deliberates whether the new offer is acceptable.

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