Last week Altria Group, parent company of the leading cigarette maker in the USA, Philip Morris, revealed its financial report for the third quarter of the year. The company reported revenue added 2.2% on the year-over-year basis, equaling $6.2 billion and significantly surpassing consensus estimates. Adjusted earnings grew by 3.2% to post $0.58 per share, nearly in-line with anticipated results.
The company had to pay a heavy charge of $874 million to settle early debt extinguishment, and in addition it benefited from inexpensive interest rates, releasing $1.9 billion of 2.85% unsecured notes to be paid in 2022 and further $900 million in 4.25% unsecured notes to be paid in 2042. Analysts believe the given capital could be directed to buy back shares, since the company approved a supplemental $500 million for its share buyback plan.
Although experts think Altria shares are valued at a fair basis, anti-smoking measures hinder possibly accretive spending on promotion and marketing, while according to experts, dividends and share repurchase are the best way for Altria to provide shareholder value.
Net revenues from Altria’s tobacco products went up by 3.2% on a year-over-year basis to equal $3.8 billion. The margin of adjusted operating income grew by 40 points to 42.4%. The profit results were inspiring, as the company saw shipping volumes of premium cigarette brands drop 8% versus the previous year, but offset by a 14% growth in discount and low-cost cigarette brands.
At the same time, solid pricing strategy for its flagship Marlboro brand, posting in 1% volume growth, effortlessly offset the decline in other premium brands, such as Virginia Slims and Parliament. The share of the market for both the market-leading Marlboro and its maker grew to equal 42.7% and 42.7% respectively.
Smokeless tobacco products delivered yet another solid performance, since revenues excluding excise taxes were up by 2.5% versus last year to $408 million. Sale volumes of Scoal and Copenhagen brands jumped by 8%, while the combined market share of the two brands added 160 basis points to equal 50.9%.
Since smoke-free tobacco brands are less criticized by anti-smoking advocates than cigarettes, analysts predict this category will post further growth in volume to outpace other tobacco products slightly, which would be positive from the point of view of profitability. The margin of adjusted operated income of the smokeless tobacco jumped to 62.3%, however, at $254 million it still makes a rather small contribution to profitability.
Moving forward, Altria confirmed its adjusted earnings forecast for the full year at $2.19 to $2.23, in-line with consensus estimates. Analysts appreciate Altria’s pricing power. Volume drops in the United States have been mainly associated with growing taxes and stable unemployment rates.