Altria Group, Inc. (MO), which engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally, announced its financial results for the third quarter 2011 on October 27.
Earnings Review
Altria’s third-quarter earnings came in at 56 centsper share, which were in-line with the Zacks Consensus Estimate. However, it was up 3.7% from the prior-year quarter. The quarter benefited from strong performance of its businesses, new share repurchase, and cost reduction initiatives.
Total revenue exceeded the Zacks Consensus Estimate of $4.4 billion, but declined 4.6% to $6.1 billion, as opposed to the prior-year period. The decline was attributable to lower net revenues from cigarettes, partially offset by higher net revenues from smokeless products, cigars, wine and financial services. Revenue net of excise taxes decreased 3.0% to $4.3 billion in the third quarter of 2011.
During the quarter, Altria completed its $1 billion cost reduction program of 2007 to 2011 and exceeded its $1.5 billion goal versus its 2006 cost base. Altria has now initiated a new $1 billion cost reduction program to deliver $400 million in annualized cost savings by the end of 2013.
Altria estimates total pre-tax restructuring charges in connection with this new program of approximately $375 million. Around $340 million or 11 cents per share would be recorded in the fourth quarter of 2011, and the balance in 2012.
In addition, Altria successfully completed its previously announced 2011 share repurchase program of $1 billion during the third quarter, where Altria repurchased 37.6 million shares at an average price of $26.62. Altria has again planned a new share repurchase program of $1 billion which is intended for completion by the end of 2012.
In August 2011, Altria’s board also raised its regular quarterly dividend by 7.9% to 41 cents per share from 38 cents per share.
(Read our full coverage on this earnings report: Altria In-Line, Gives Outlook)
Agreement of Estimate Revisions
Despite a strong third quarter, the analysts’ community has remained rather unmoved over the past week for the two upcoming quarters as well as fiscal years 2011 and 2012.
Out of the 7 analysts covering the stock for the upcoming quarter, only one analyst has increased its estimates over the past week, while two of them showed a negative trend. For the first quarter of 2012, only one out of 5 analysts increased its estimates, with none reducing their estimates over the same period.
For the current fiscal 2011, two out of 10 analysts have raised their estimates over the past 7-day period, while two of them reduced the same. Similarly, only one out of 10 analysts gave a positive revision for the fiscal 2012, while two analysts revised their estimates downwards for the same period.
We believe that the Altria’s business environment for the remaining 2011 is expected to remain challenging, on the back of the economic pressure and high unemployment.
Magnitude of Estimate Revisions
Therefore, there has been a marginal shift in the estimates over the past 7-day period. The Zacks Consensus Estimate for the fourth quarter of 2011 remains unchanged at 50 cents per share, while the estimates increased by one cent to 49 cents for the first quarter of 2012. For fiscal years 2011 and 2012, the estimates plummeted by a penny to $2.03 per share and $2.18 per share, respectively.
Although the company has been consistently performing well in terms of cost saving programs and share repurchases, we believe that increased smoking restrictions in the U.S. and Europe has had a significant impact on cigarette consumption. Moreover, governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced cigarette industry volume, and we expect that these factors will continue to reduce cigarette consumption levels.
Altria, which competes withReynolds American Inc. (RAI) and Lorillard, Inc. (LO), currently holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock, which translates into a short-term Hold rating.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
