Smokeless Products Expected To Be The Key Driver In Altria’s Near Term Revenue And Earnings Growth

by Trefis Team
Altria Group, Inc.
Rate   |   votes   |   Share

Altria (NYSE: MO) is set to release its Q2 2019 earnings report on July 30, 2019, followed by a conference call with analysts.

Key Expectations

  • Altria Revenues have been decreasing over the last three quarters due to the decline in the sales of cigarettes.
  • However, MO is expected to report revenue of close to $5 billion in Q2 2019, marking a y-o-y growth of over 4%.
  • Higher revenue is likely to be driven by healthy growth in Altria’s smokeless division, on the back of millennials shifting from combustible products to e-vapor and other non-combustible options.
  • Earnings are expected to come in at $1.10 per share in Q2 2019, higher than $1.00/share in the previous year period.
  • Improvement in earnings is likely to be a reflection of higher revenues, gradual withdrawal of discounts and other promotional offers on smokeless products, and benefits of the cost reduction program, being partially offset by higher interest expense.

You can view our interactive dashboard – Altria Earnings: Performance and 2019 Forecast – and alter the assumptions to arrive at your own estimate for the company’s revenues, earnings, and stock price. In addition, here is more Consumer Staples data.

A Quick Look At Altria’s Key Revenue Sources

MO reported total revenue of $19.63 billion in FY 2018. Following are the key revenue segments:

Smokeable products: Contributed 87.9% of MO’s total revenue in 2018. This segment consists of combustible cigarettes manufactured and sold by PM USA and Nat Sherman, machine-made large cigars, and pipe tobacco.

Smokeless products: Contributed 8.9% of MO’s total revenue in 2018. This segment consists of moist smokeless tobacco and snus products manufactured and sold by USSTC.

Wine: Contributed 2.7% of total revenue in 2018. This segment consists of wine produced and/or distributed by Ste. Michelle.

All Others: Contributed 0.4% of MO’s total revenue in 2018. The financial services and the innovative tobacco products businesses are included in all other.

A] Key Revenue Trends

Smokeable Products

  • Revenue from the smokeable products segment is expected to remain under pressure in Q2 2019, mainly due to lower shipments, partially offset by higher pricing.
  • Cigarette and cigar volumes have also been decreasing over most of the recent quarters as people are moving away from combustible products.
  • However, Altria has resorted to price increases to avoid a sharp decline in revenue.

Smokeless Products

  • Revenue from the smokeless products division is expected to increase in the near future, driven by higher volume, along with premium pricing and partial phasing out of promotional investments and discounts.
  • Continuously increasing market share of Copenhagen, which is the premier offering in the oral tobacco category, is also expected to boost segment revenues.

B] Expenses and Profitability Trend

Total expenses are expected to remain almost flat on y-o-y basis in Q2 2019, driven by a decrease in general and administrative cost, spending cuts, offset by higher interest outgo.

  • SG&A Expense: SG&A expenses decreased over the last two quarters due to the recently announced cost reduction program, which includes third-party spending cuts and workforce reductions. Going forward, we expect SG&A cost to decrease further as the program is expected to deliver $575 million in annualized cost savings by the end of 2019.
  • Interest Expense: Interest expense is expected to increase significantly in Q2 2019 compared to the previous year period, driven by the increased debt raised to fund the Cronos and JUUL transactions.

Net income margin is expected to increase (on y-o-y basis) in Q2 2019, driven by higher revenue and almost stable expense levels.

Full Year Outlook

  • For the full year, we expect net revenue to increase by 0.5% to $19.72 billion in 2019 and further by 1.8% to reach over $20 billion in FY-2020.
  • Higher revenue is mainly to be driven by rise in sales of smokeless products.
  • Net income margin is expected to increase from 27.5% in 2018 to about 30% in 2019 and further to 32% by 2020, driven by the cost reduction program which is expected to deliver $575 million in annualized cost savings by the end of 2019, partially offset by higher interest cost.
  • Additionally, lower impairment charge compared to 2018, is also expected to contribute to higher profitability.

According to Altria Valuation by Trefis, we have a price estimate of $57 per share for Altria’s stock. The company still has $195 million remaining in its $2 billion share repurchase program, which it expects to complete in 2019. Altria has increased its annualized dividend yield, which stood at 5.9% as of April 29, 2019. We believe that the recent acquisitions, implementation of the cost reduction program, higher dividend pay-out, and additional share repurchases could support the growth in Altria’s stock price over the next one year.



What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

All Trefis Data

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!