How Did Altria Perform In FY 2017?

Despite a fall in its stock price, it can be said for certain that Altria (NYSE:MO) had a strong 2017. The company was able to grow its full year adjusted diluted EPS by 12%, on the back of higher equity earnings from its investment in Anheuser Busch, improved operating companies income, a reduced share count, and a lower tax rate. However, the company’s revenues fell almost 3% for the year, driven by the fall in the cigarette volumes. Looking ahead, interesting things loom on the horizon for Altria. Chairman and CEO of six years, Marty Barrington, will retire in May, and will be replaced by 25-year Altria veteran Howard Willard, the current COO. The company is awaiting the launch approval from the FDA for iQOS, a heat-not-burn tobacco device. While the company had a setback with the rejection of the lower health risk claims for the product from an advisory panel, the decision is not certain, and the decision to sell the device in the US is part of a different application. Additionally, Altria has prepared a modified risk tobacco product application for Copenhagen Snuff, and has invested in new innovative products at Nu Mark.

We have a $73 price estimate for Altria, which is slightly higher than the current market price. The charts below have been made using our new, interactive platform. You can modify the assumptions and gauge its impact on the company’s price estimate and earnings per share metrics.

Bigger Focus On The Small Segments

• The smokeless segment delivered an impressive 11% operating companies income growth in 2017, despite a voluntary recall of some smokeless tobacco products.
• Copenhagen continued its growth and market share improvement. However, Altria’s other big smokeless brand – Skoal – witnessed a market share decline, as the company continued its focus on growing Copenhagen while honing its investments into Skoal to enhance profitability.
• Within e-vapor, Nu-Mark’s Markten brand continued its solid growth, with volumes increasing a mammoth 60%, driven by increased distribution, as well as industry growth.
• The brand ended the year with a national retail share of approximately 12.5% in the mainstream channel.
• Significant progress has been made on the commercialization plans for iQOS, including a consumer engagement program and the development of digital strategies.
• Given the decline in the cigarette smoking rate in the US, it is imperative Altria place a greater focus on its smokeless and innovative tobacco segments. While the smokeable tobacco segment continues to form a large chunk of the company’s revenues, there has been a greater need for diversification. And this is where iQOS can prove to be a game changer.

Tax Rate To Positively Impact 2018 Earnings

• As per the new tax bill, the corporate tax rate will be lowered to 21% from 35%, while the overall tax structure is also expected to be simplified.
• This factor will have a massive impact on a company like Altria, as it operates entirely in the United States, and has been till now, subject to the exorbitantly high corporate tax rates in the country.
• In this respect, the company’s 2018 EPS guidance calls for a 15% to 19% increase on the 2017 figure, implying earnings in the range of $3.90 to $4.03 per share, with the expected tax rate hovering between 23% and 24%.
• Altria will also benefit from a lower tax rate on taxes on AB InBev dividends it receives.
• The EPS will be negatively impacted by the strategic long-term investments Altria has been undertaking, such as innovative product development and launches including iQOS, regulatory science, retail fixtures, and future retail concepts. The company is aiming to reinvest one-third of the total tax reform benefit it is receiving into these initiatives.

See Our Complete Analysis For Altria

Have more questions? Have a look at the links below:

• Why It Makes Sense For Altria To Bet On The E-Cigarette Market
• How Can Altria’s Valuation Change With A New Effective Tax Rate?
• What Does FDA’s Rejection Of iQOS Claims Mean For Altria?
• Key Reasons Why We Are Bullish On Altria

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